Good aftenoon, ladies and gentlemen, welcome to Cargotec's Capital Market Day 2017. Great to see so many of you here in Haberdashers' Hall in London, and I'd like to also warmly welcome all of you who are following this event via webcast. My name is Hanna-Maria Heikkinen, I'm in charge of investor relations, and I have been in the company for one year now. I'm very confident that we have lots of great potential in this company and our people are both willing and capable to deliver. We in investor relations have also very high ambition level to serve you in the best possible way and have very proactive approach and continue to improve the disclosure. As you may remember, we published our updated financial targets already one week ago, and today we will describe you how we will reach those targets.
We will have five interesting presentations, and after those presentations there is a possibility to ask questions. Of course, you can ask questions here in Haberdashers' Hall , but also the people who are joining the webcast have the possibility to ask questions online. After those presentations, we will host breakout sessions for each of our must-wins, and those breakout sessions will also provide great possibility to learn more about our must-wins and how we will proceed with those. Now it's time to start with the presentations. Our CEO, Mikael Vehviläinen, joined Cargotec in 2013, and our operating profit has more than doubled since that. Mikael, the stage is yours.
Thank you, Hanna-Maria. Ladies and gentlemen, first of all, very warmly welcome to Cargotec Capital Market Day 2017. Thank you for taking the time to be here or thank you for participating via the webcast. Today, we will discuss how we plan to meet those financial targets we set for ourselves that you saw roughly a week ago coming out. My presentation will be more about the reflect a little bit the progress in last few years. It looks about our strategy, our strategy execution. The three BA presidents will talk about the plans and the businesses more in detail. Mikko Puolakka, our CFO, will then wrap up the presentation, put in those plans in financial terms, and show you how we plan to meet those targets that we published a week ago.
The last Capital Market Day we was in, almost two years ago in November 2015. At that stage already, I think we started to sort of show the signs of the promise the company has. It's interesting always when you prepare for this Capital Market Days is sort of it's also time for yourself a little bit to reflect where you are and where we have been. I have to say that I'm pretty satisfied in terms of the progress we have made. Obviously, we have made progress in terms of financial terms, but perhaps more importantly, we clearly have now shown progress in terms of our strategy and strategy execution.
Overall, our execution capabilities and sort of the track record is in much stronger place, that makes me very confident about meeting those financial targets that we will discuss today a bit more in detail. Before going to actual track record and the strategy, a few words about Cargotec first. When I was considering joining the company as a CEO in 2013, what really attracted me into the company was those fundamental, unique strength that the company still possesses today. If you look at our business, obviously we have three business areas, we operate approximately in 12 different segments. In every segment, we are either a strong market leader, sometimes a dominating market leader, or at least a strong number two . Our brands, even though they are not particularly well-known outside the industry, are highly relevant for our customer base.
Very often, they are the category-defining brands in there. The customer loyalty, when I saw the NPS results first time in 2013 and 2014, and I've been B2B business for practically all my career, I never seen such high scores. There is a really strong customer satisfaction and loyalty, almost, I would say, an emotional attachment towards our brands and products within our customers as well. That's of course a great position to be in. In terms of technology, many of the segments we actually operate in today, we have actually created or invented those segments originally. You combine that with the R&D acceleration we have done in the last couple of years, that puts us in a very strong position. When you have a market leader who actually accelerates on R&D, you start to pull more and more away from the competition.
If you look at those unique fundamental strengths and look at our financial performance in 2012 and 2013, it was very obvious to me that the company has a great potential to move forward. Today, we start to see some of the potential coming through in our financial performance. At the same time, I have to say that every day I see more and more opportunities for us to push that performance even further. If you look at the business today, very fairly balanced portfolio. Sales and services, sorry, software and services is about 1/3 of the revenue today, more than EUR 1 billion. We will discuss that a lot more in detail today.
If you look at then the composition of the business areas, this has of course changed quite a bit in the last couple of years when the shipping cycle has come down and the sort of the new building and the shipping size has considerably slowed down, which means that the MacGregor part of the business has declined quite a bit. At the same time, we have seen growth happening both in Kalmar and Hiab, and that mix change in the business areas is then obviously affecting also the geographical mix as MacGregor, being in shipbuilding in primarily Asia-based business. Most of the revenue for the Hiab and Kalmar is actually coming from the European and North American or Americas region, and that's impacting that one. Let's look a little bit sort of what we have done in the past few years.
First of all, in terms of revenue, we had a solid growth overall from 2013 to 2015. Since 2015, obviously, the slowdown in shipbuilding is impacting MacGregor revenues. Despite the decline on that market, we still have grown more than 8% since 2013 and if you exclude MacGregor revenue, Kalmar and Hiab actually have combined growth of 15% over that time. Obviously, especially Hiab showing clear growth in the last two years, and also some parts of the Kalmar which we are especially focused, such as software and services grow in much faster pace. Obviously, very pleased with the...
In terms of operating profit, especially if you put that in context, I'm sure many of you remember that in 2013, MacGregor was almost solely responsible for the profitability of the company. Obviously, with the change in shipbuilding market, that profitability is under pressure at the moment, I have to say that I'm very pleased with what Michel and the team has been able to do in terms of keeping the head above the water in MacGregor and maintaining that profitability. At the same time, obviously very, very pleased about the progress we have made in the two other business areas. In Kalmar's case, we have more than doubled operating profit. In Hiab's case, the profitability has been 6-folded in last few years.
One big contributor when you look at the profitability improvement is the fact that we have not achieved that profitability improvement primarily by cost-cutting. Obviously, there are a number of efficiency initiatives that we have done, and there are still number of efficiency opportunities we have in the businesses today. The primary driver for the profitability improvement is actually coming from the gross margin improvement. I'm very pleased for the fact that we invested very clearly since 2013 into our strategy. Our R&D costs are actually up by 42% compared to 2013. We have innovated and invested into new software development. We have innovated and invested into new product development, and those are all helping us in driving our gross margin better. The gross margin actually has gone from roughly 18% to roughly 25% within this timeframe.
Quite a remarkable improvement. If you look where that's coming from, it's a number of things. It's a better product mix with the increase in proportion of software and services from that one. It's the new products that are more attractive and more competitive for our customers, also with better price points, but at the same lower cost points. The acceleration in R&D is driving better product margins. It's also the project execution in terms of the. As some of you remember, we had some difficulties with the project execution. Both in MacGregor and Kalmar, we clearly see improving project margin happening. The combination of those ones is driving up the gross margin, and that's the biggest single driver for the clear profitability improvement we have seen in the business. Services and software, as said, already 30% of our revenues.
We aim to have that in the 40% range and grow from today's 1 billion- 1.5 billion within this timeframe. We will talk a little bit more in detail today how we plan to get there. I'm pleased for the fact that we have been able to grow services across all the business areas. Obviously, in the last two years, MacGregor Services has been under pressure when the shipping lines and ship-shipping is in very difficult situation. Customers are saving, the market as such is sort of contracting there as well. Despite that, we've been able to grow the services across the range. The software revenues today are coming solely from Kalmar, primarily a combination of the Navis software business and the automation software.
In the coming years, you will see software growth actually coming through all the three business areas, and you will hear more details about that one later today. When you look at the role of the group, and I know I had a number of discussions with many of you on this one in the past as well, the way I would define that one is that, what we try to do in the Cargotec Group level is to drive the performance, and by that one, drive the shareholder value. We drive that, first of all, by driving what we call a performance culture. In the first two years, we had quite a number of leadership changes, and we can discuss that more in detail in the HR breakout session today.
We've been also very consistent of driving new leadership, new attitudes, new culture, changing sort of the remuneration policies to be more, more variable, et cetera. We've been also driving performance in terms of being quite focused on some of the operational improvements in there. The next element is really then investing heavily into the platforms and systems that get us a better grip on the business. One of the surprises I had, that I shared with many of you when I came in, is how poor visibility we had in the businesses today. If I look at the situation today, we have much better control environment. We are able to sort of ensure our code of conduct and ethics much better we had in the past.
Most importantly, we have much better visibility and grasp of our business that enables our managers to drive that business forward. That puts us in a much stronger position to perform as well. The third element then is, would be the shaping the portfolio, and we have discussed that one. Obviously, part of that is reallocating capital into the strategic investments we are doing in terms of software and automation. Some of that is also shaping our existing portfolio. Since the capital market day in 2015, we have done a number of smaller exits in our businesses, and we have done a number of acquisitions as well. However, being quite frank on that one, I'm not entirely satisfied with the pace of that portfolio change that we have done in the past years.
In the last 2 years or so, we've been working a lot more actively with our portfolio selection, both in terms of exits as well as then looking at the potential acquisition targets. I'm very pleased to say that if I look at our actually M&A pipeline right now, it's considerably stronger than it was still 12 months ago. I think I'm quite confident that you will actually see the pace in terms of M&A accelerating in next 12- 18 months. Stay tuned on that one. Obviously, all of those things, operational performance improvements, better platforms, better control environment, shaping the portfolio, has resulted to quite satisfactory shareholder value development, especially since the capital market day that you last joined in 2015. That's quick look on the back how we have done in the last couple of years.
As I said, fairly pleased in terms of the financial performance. Lot of opportunities left, but I'm also very, very pleased on the fact that the, kind of the capabilities we have built in this company are now in a much better shape that really then enables us to drive further value creation there as well. That brings me to our strategy. I'm sure that this slide should be familiar to all of you. Actually, it's exactly the same slide that I showed to you in Capital Markets Day in 2015. We have gone through this many of you in one-to-one or smaller group discussions as well. The strategy is still the same. What the strategy is fundamentally about is transforming an equipment company. Every day a better equipment company. Still an equipment company.
From equipment company to a company who's the leader in intelligent cargo handling. What does that mean? It means that increasingly large part of our revenues will be delivered through services, software, new digital revenues, and new ways of engaging our customers. We are going from selling equipment to our customers of being part of the customer's life cycle throughout the whole product life cycle and being part of the customer processes, driving more sustainable, more efficient processes through more intelligence. We will add intelligence into our equipment. We will add intelligence into the systems, such as automated ports, and we will add intelligence in the ecosystems, such as the cooperation platform, XVELA, for the port and shipping cooperation. To enable this transformation, we are focused on three must-win battles. Digitalization, services, and leadership. Let's look at each one of them a bit more in detail.
Digitalization is an interesting one. I was actually sort of reflecting this quite a bit when I was starting to prepare for the presentation. I have to say that compared to where we were with this one in 2015 and where we are today, that's quite a remarkable difference. It's not necessarily visible for outside world, but I guarantee it will be. In 2015, this was a lot about sort of initiating different things, incentivizing the product units to get sort of going on that one, giving money out of outside the budget constraints and also enabling and starting to build capabilities and platforms for that one. When I look at the number of activities today, especially in the last 12 months, that are sort of. It has been a huge explosion of different activities.
Soili Mäkinen, who is driving our digitalization initiatives and is available in the breakout session, her and her team's role has sort of changed remarkably from kind of initiating these things and getting things going and building capability to more actually now coordinating and prioritizing the number of initiatives we have going on at the same time. This wouldn't have happened without us investing into capabilities. We have hired more than 100 people to drive our digital revenue initiatives in the company. We have invested into common shared analytical IoT platform that all of our equipment will be connected, and we are able to drive different analytical services and create business and revenues through those ones.
Today, already we have thousands and thousands of equipment connected into that platform, more coming every day, and our target clearly remains, and we are very well on the way, that by the end of the next year, every one of our new equipment will be connected to that platform. Our software business has grown 54% since 2013. Primary growth has been coming from the Navis business, where we have obviously a very strong position, and the growth there has been 94% since 2013. We are introducing new products that are moving from sort of system intelligence and product intelligence to ecosystem intelligence, and XVELA is a great example where we try to drive the sort of system efficiency between shipping and ports by introducing SaaS-based intelligent platforms for companies to exchange data and optimize their transactions.
One challenge, of course, is that when you move as a equipment company into digital services, that the way you actually operate has to be fundamentally different. We have also recognized that one. We have started a number of what we call business accelerator initiatives, where we take a group of people completely out of the sort of normal clock speed and the way we operate. Let them drive fast innovation, fast introduction of products with the sort of try and fail basis, because you do need to do this somewhat separately. At the same time, we do our best to sort of protect the software business from the rest of the company to ensure that they operate on those and terms and conditions that the successful software business requires.
The result of all that investment and activity is that in the next sort of 12-18 months you will see more than 20 new products introduced, some of them fairly shortly, actually, into sort of digital revenues and new revenue streams coming from that one. We are further investing into Navis. We really clearly see that the position we are in today, we are today undisputed leader in the port ERP systems on the commercial side. That market keeps on growing when people are switching from the homegrown systems into the commercial systems. About 65% of all the merchant ships in the world have our stowage and loading computing systems. We will be introducing new services and drive the efficiency in the whole shipping ecosystems on that one. That growth will be both organic as well as inorganic.
Ultimately, of course, our what we try to do here is that in the next 3-5 years, we expect revenues from business at least to double. The market opportunity clearly is there. The logistics industries is in many ways surprisingly unsophisticated in terms of leveraging data. The robotization, automation is taking its first steps in there. With the market position we have in the different segments and with the capabilities we have created, I think this is a fantastic opportunity for us to drive new services and new revenue streams in this business. The digitalization and services, of course, go very much in hand-in-hand. The digital capabilities and connectivity is a very important enabler for the services business. At the same time, some of the digital capabilities are actually then gonna be realized in revenues from the services point of view as well.
Very strong linkages in those ones, and you need to be able to build capabilities in both sides at the same time. Services obviously has been a focus for us some time. I'm pleased for the fact that we have grown about 20%. That growth has actually happened in all three business areas. We expect that pace actually to be growing, getting to that EUR 1.5 billion, including the software as well, in the next 3-5 years as well. The good news is that we already have a very strong services network in place. We have more than 4,000 professional services working all across the globe in all of our three business areas there. We are still looking at opportunities to actually go deeper and enhance the service presence in certain selected areas as well.
We have introduced part of the new pro-products, I would sort of characterize overall what we have done in services that we have now laid the foundations for further growth in there. We have worked very much in terms of the platforms, systems, such as spare part logistics. One of the issues we had in the past when we had such a poor attachment rate is that people didn't buy from us because they couldn't get the spare part in time. Today, with the changes we have done, for example, in Hiab, our spare part availability and on-time delivery is at the 98% level quarter after quarter after quarter. We are also expanding our e-commerce capabilities.
The Hiab e-commerce for spare parts is now available in 28 countries, and this will be open up from the dealers to the rest of the market, and also the other businesses are expanding in the same direction. If I look at then where we are today and compare the best in breed, our spare parts attachment rates are still relatively low. We are working hard on that one. One important enabler for that one is that we need to get better in the maintenance and service contracts as well. Although the maintenance and service business from the margin point of view is not as attractive as the spare part business on its own, obviously it's an important enabler to pull in your spare parts. If you have a complete maintenance contract with the customers, you do have 100% share of the spare parts as well.
If I look where we are today in service contracts, it's actually nothing to be happy about. Service contract attachment rate today in Kalmar is 3.5%, it's no better in any of the other businesses. It just shows what an opportunity we have there. Some of that is an industry issue, a lot of that is the fact that it has not been in our agenda very much. We are continuously hiring now more salespeople in our services, we are also incentivizing and tracking our new recruitment salespeople in terms of the attachment rates. We start to see some encouraging signs of that one. If I remember correctly, in Hiab in the first six months of this year, we have done 258 new service contracts.
Still relatively low number if you think how many cranes we have sold in the same number. Clear opportunity for us to grow that one. Also, at the same time, we are looking at increasing our service presence even further. You will hear more about the service-related initiatives, both in BA president presentations, and then we will still have a separate breakout session where the heads of the services will be talking about what's going on there as well. If I benchmark today us in our direct competitors, actually we are not doing that badly in terms of services performance. In every single BA, actually, we tend to outperform our direct competitors in services. If I benchmarked us with the best of class or the Scandinavian engineering houses that have good services business, we are obviously very far from there.
That's the benchmark we should be having. That's where we are driving. We need to obviously be the leader benchmark in our own industry, but we need to be also getting our capabilities up there. I'm very confident of that, and a lot of the enablers and systems have been put into place now, and we start to see the results coming through from that one. Last area on the must-win battles is the leadership area. Number of changes done in our management. What we have also done is to start to drive that sort of leadership behavior culture. What we did is that with external party, we have looked at the companies that have been doing successfully similar transition and transformation that we have done.
We have looked at what leadership sort of characteristics or leadership styles have been most effective to enable that kind of transformation and what impact they have on the team climates. Generally, the right leadership styles impact on the performance of the team climate and the team climate has a direct impact on the performance of the business. We have then actually measured and analyzed our top leaders against those leadership styles and then we have done workshops and training around that one. The top 300 leaders have already gone through that one. We all are getting our results. We are all sort of helping ourselves in terms of improving on that one. Right now we are going through the next 700 leaders on that one.
The leadership analysis and the sort of leadership styles and the team climate is part of our regular performance development. We are actually analyzing and coaching our people on a regular basis, at least every six months. We will drive in that one. The plan is coming from, I would say, that the performance climate that wasn't quite there for that to be actually a competitive advantage for us in the coming years. The leadership styles and the leadership capabilities will be part of the characteristics when we hire people, when we promote people, when we do performance discussions with our people. Again, our head of HR, Mikko Pelkonen, will be there today. I would suggest very much to also participate on that one.
Pretty interesting things happening there in terms of we really have sort of, in terms of our HR and leadership capabilities, done huge leaps in the last few years. Sustainability is an important topic in our industry. Our customers, the logistics industry is generally under big pressure in here. It comes from the consumers and more need for green products. It also comes from regulators, local regulation, global regulation around shipping, trucking, anything at the moment. If you looked in that need that is coming from our customers and the investments we have done in our technology in terms of building automation, robotization, electric solutions, this is clearly a competitive advantage for us. We published our sustainable product portfolio in connection of our annual general meeting this spring. It's about 20% of our revenues today, increasingly important for us. It's about building system efficiencies through software, automation.
It's about serving the environmental industries, which is a clear growth opportunity for our businesses. It's about building more electric solutions, actually in all businesses, in shipping going from hydraulic to electric and other businesses going from diesel to hybrids to full electric solutions as well. Clear opportunity for us as we are leading the development in most of these areas, obviously also services in terms of building resource efficiencies there as well. Quickly on the financial targets, Mikko Puolakka will cover the more in detail, but let me talk a little bit about operating profit, EBIT margin of 10%. Some of you probably have long enough memories that this was actually a target the group had in 2012 and 13 when I came on board.
I asked that target to be taken out in 2013, and the primary reason was that if you looked at our performance at that stage, I couldn't find a single plan in the businesses that would have actually have taken us to 10%. What we did at that stage, we gave the turnaround targets, EUR 40 million each for Kalmar and Hiab. We delivered on those targets ahead of the time, and obviously you've seen the results now in terms of EBIT improvement. We are clearly above those targets. In 2015, we introduced the business area-specific targets. When you look at the development at the moment, obviously some of that is starting to be outdated. More important from your point of view, as an investors obviously, is what is the group doing?
The amount of recurring revenues is already today one-third of the business. That will proportionally increase. If I look at even under different scenarios, I'm very comfortable today that we have clear plans to actually meet the 10% target within this timeframe. The other area is the services and software. We had that 40% target. Of course, what we learned is that, you know, when the businesses are changing, you could say that in MacGregor, we hit the percentage target faster than we expected, but that was obviously coming more from the decline in the equipment business than anything else.
There is a real possibility that when the MacGregor business and the shipping business will bounce back in the future years, we will actually see again, proportional decline in MacGregor of the services, even though the service itself will be still growing faster than it has in the past. What obviously is more important is the absolute target. Now we have sort of introduced that EUR 1.5 billion in services and software. In summary, if I look where we are today, this company has done good progress. This company is in much better shape than it was a while ago.
In much better shape in terms of the leadership. The culture, the capabilities we have in-house, the systems and platforms that enable us to drive the performance of the business, give us the right visibility, and the strategic implementation we have done in there. That makes me very, very confident of our ability to drive that performance further, to drive the shareholder value, and get to those financial targets very soon. Thank you very much.
Thank you, Mikael. Now it's time for questions.
Thank you. Hi. Johan Eliasson, Kepler Cheuvreux. Just a short question. You want to double software turnover over this timeframe. What about profitability? Do you still see a heavy R&D spend in this period, so margins will stay basically where they are, or what's the ambition there? Thanks.
Good question. I mean, today, the software business really is a break-even business for us due to the investment we have done. I expect the profitability of that one also start to improve in the coming years. The scale benefits and obviously more and more some of the businesses, such as the Navis, those businesses becoming more mature and can provide good contribution for the business. Over there, I expect both revenue increase as well as the margin improvement.
This is Tom Skogman from Carnegie. If I look at your old service and software sales target, it was 40% of revenues by 2020, implying, you know, looking at market estimates that you would have had EUR 1.6 billion of service and software sales already 2020. Now you talk about EUR 1.5 billion 2020-2022, so it's actually kind of pushed forward, you know, quite significantly. I wonder what has kind of surprised you. Have you not been able to do the acquisitions you have targeted to, or is it that the Kalmar's, you know, spare part ratio capture has developed slower than you expected initially, or what has went wrong if you compare to the old targets?
I don't think anything has gone wrong. One has to remember that when those targets were done at 2015, and so the summertime when we built the scenarios, looking at our assumptions of the business units, equipment part of the growth were somewhat different as well. If I look at the absolute numbers, in absolute numbers, actually, I think we are pretty close to what we were aiming at that stage already. For example, give you one example, we underestimated the growth we are doing in Hiab in 2015, summer, where if you look where we are today.
Are there further questions?
Hi, I'm Antti from Danske Bank. I mean, you have been talking about terminal automation. You mentioned it even in your presentation. I just wonder what your thoughts are currently in that field. You've been postponing things a little bit in the past.
If you don't mind, Antti, what we could do is Antti is going to touch that. The other Antti is going to touch that a lot more in detail. Maybe let's come back to that one question after that one.
You mentioned a quite interesting point that you are aiming to double the software revenues, but also that some of that is coming from other businesses than Kalmar, which makes it as of today. How much potential do you see from Hiab and MacGregor from the software business?
The not in the same rate as. If I talked about software generally, I would say that there are three levels, as I discussed. There is a sort of intelligence or software you put into equipment, then there are system level, and then there are ecosystem level. When I talk about MacGregor and Hiab, I primarily talk about the product and system-level software capabilities. I think Roland and Michel and obviously Antti will talk about some of the examples what we are doing there today. There is, as I also said, about 20 new products coming out fairly soon. You start to see actually what we are talking about there. Primarily sort of the bulk of the software business is still around the shipping ports and other.
It's good to remember in a way that the software business as such is today not Kalmar specific. It's hosting that one. Some of that actually is serving the MacGregor customers already today.
We'll take one more question and then continue with Kalmar.
Hi. You say you're looking at a lot of M&A. Can you give a bit of flavor what sort of things you're looking at and the bias between hardware and software?
Yeah, I think this is gonna be balanced on that one. We have discussed this in the past as well. We are, in Hiab's case, primarily looking at accelerating the growth. It's a market penetration in certain areas, potential product penetrations in other areas that will enhance the business. Today, in MacGregor case, it's pretty opportunistic actually. When you look at the market situation today, there could be some attractive assets for us. We already had done some. I think Michel is going to discuss that more in detail. Let's use the opportunity in the shipping cycle to sort of look if there are assets available on that one. In Kalmar's case, it's very much in the software business, looking at the additional software assets as well.
I would say it's probably 50/50, 60/40 equipment, software, that sort of ratio, depending a little bit on the targets and the timing of those.
Thank you, Mikael.
Thank you.
Now it's time to go on.
We will continue with Kalmar. Antti Kaunonen has been leading Kalmar for some 15 months now, and Antti has impressive international career. You are one of the doctors in our company and you have also a good background from industries like pulp and paper and oil and gas, where the automation penetration is already very high. Please, Antti, the stage is yours.
Thank you, Hanna-Maria, I have to say that I'm excited to be here. Welcome to the exciting world of intelligent cargo handling. Mikael was already saying a lot of points what I'm gonna say, so it will be the repetition, but that always good when your boss is having the same message what you are having. What Hanna-Maria was already saying is just that I have experience. I have been always involved with automation, I would say almost. Almost always, and always in this context is 30 years plus. Like I said, experience from pulp and paper, oil and gas, power generation, and these are industries where the automation level is much higher. Much higher what is in the industry, what we are now serving.
From that point of view, I'm excited because we can copy a lot of the things that have been done in other industries and leverage that to our industry. That's why I want to really say that we can, and we have already shaped the industry. That's why I have this kind of very strong statement about shaping the industry. It's possible. My key points. Since the last CMD, 2015, we have continued to improve our profitability. Services is really providing the biggest medium term. Why do I say medium term? It's very easy and simple. To become from a great product company to a service company, you don't do it overnight.
You need to take the time and all the points about 3.5% attachment rate and so on, that's the starting point. You can look at from two positions. I look it as an optimist, I'm an optimist for the great opportunity. I love the industry megatrends. I really love them. I'm really excited about those and for uncertain, as excited Finn as you can be for these megatrends because they all push towards the software and automation. About our situation. Yes, we paid dearly. You can see that even our profitability to learn to deliver the mega project, big automated projects. Now we can do it, and that's the key message. With all the offering what we have, we have a very unique position, and we have the experience, we have made the mistakes.
Coming to the CMD, I'm referring a lot of those promises what were made then. I will start with the photo what we have. This is our test yard in Tampere, Finland. This is the most extensive and also expensive test yard in the world for testing automated solutions. We have it all here. We can do all the testing there and not in front of the customer. That's a huge competitive advantages to us. It includes all the tests, it includes everything. Coming to the leading solutions. Since the second, third quarter, we started with manual equipment, then we made the acquisition of Bromma in 2000, those businesses are still the predominant part of our portfolio. Very important.
You've able to read yesterday that we sold some systems over to Fiji yesterday, so I have to go there and make a test run and see how everything is running. Already 20 years ago, we went to the automated terminals, and then it was pretty much still the bleeding-edge technology, not the leading-edge technology. We needed to do a lot of learning from that point of view. Like I said, so we have learned a lot. It has cost a lot of money also. Great acquisition, Navis. We acquired Navis, so 2011. With that we were able to expand to the terminal operating systems, and Mikaelwas saying ERPs of the terminals. That's a good statement. Now we have a full offering. We have the brains, we have the automation levels, we have the equipment.
Total turn-key deliveries. Next point was the Interschalt acquisition about two years ago. This gave us the access to the shipping lines, and now I'm sharing some customers with Michel, so with MacGregor. We are able to have same customer contact to some of our customers. The next development is really so that we did it ourselves. We developed this collaboration platform, and it's unbelievable if you think about the state of the art in this one or the state of the art, but what is possible. The exchange of the information from the ship to the port can take place with the fax or Excel sheet. Can you believe that?
Anyway, we have this collaboration platform, and we have developed that ourselves, and we are just now pushing that to the markets and we are making the market. That's why it's always a little bit challenging. All together is really so that with all these solutions, what we have, we can really have turn-key deliveries and take care of all the major challenges of our customers. Coming to the financial performance, I refer again to the photo first. This is fully electric straddle carrier, and it's really so that we can have fully electric automated terminal solution, and we can deliver it today. If you think about our sales mix also last 12 months, our service is 26% and software is 10%. We are getting close already to this 40% as target.
Of course, like said already, we see a lot of opportunities both in the service side and also in the software side to go further. Related to our profitability improvement, this is top slide from that point of view, that we have been able to improve the profitability, but of course, we have also reinvested a lot back to the business. We have reinvested to the business. From the service point of view, in absolute terms, we have been able to grow the business, and the business part that we have been able to grow is the spare part business. That's the core of the core with the highest profitability. What have we done? I have told you already about this mega project delivery capability. Software growth has been mentioned here, zero emission solutions.
I'm extremely proud about our market leader position in Chinese market for the reach stackers and empty container handlers. That's a tough market to be in and to have that kind of position. About our profitability improvement. I'm trying to use some kind of traffic light to show what we have done since the CMD. The biggest improvement is very clear. It's this automation. We have exceeded this EUR 20 million-EUR 30 million by far since 2015. In the other businesses, I have to say that we are doing a lot of reinvestment to back to the business, especially in the software business, like Mikael was saying. We have seen the market change, and then we have considered our position to be making more investments in that business.
In the mobile equipment, we will get the full benefits of closing the Lidköping Sweden assembly operations and moving that to Stargard, Poland so next year. We should finalize this project by December this year. About the services, and Thomas Malmborg will be giving you a more detailed discussion about what we are doing, but we have put a lot of effort. I have to be here again open. We have had some challenges with one part of the service business, and that has been the crane upgrades, so heightening and boom extensions. It's widely known in the market that we have had some projects with not so good success, and we can see that also in our numbers from that point of view. The core services has been growing, and that's the point.
About the markets, and starting with the bread and butter, equipment and projects. It's roughly EUR 6 billion annual market. Our market say it's roughly 20%-30%. Most of our products, we are in the number 1 or number two position. The software market is then already a little bit more difficult really to define. What is included? If you think about the TOS, in TOS, we are exceeding 30% of market share. There our competition is really the in-house solutions from our big customers. They consider that as a strategic investment that they want to make and keep it as their own offering. About the services, and this is really showing what is the opportunity. It can be even 1%-2%.
The key point is just that the service market we estimate to be bigger than the equipment and project and software market altogether. Of course, there are a lot of opportunities from that point of view, but it means that we have to change, but our customer behavior needs also to change that they would be ready to do more service by an outside party, by a third party. Like said many times, this is this medium-term growth opportunity, and we have been investing a lot into this activity. Focus is really on the maintenance contract, like was said. It's almost shameful to have this 3.5% it mentions here. I was hoping that Mikael is not saying that. Anyway, if you think about the definition for our service business. We have it in four parts.
Spare parts, the highest profitability, clearly. Maintenance contract, like said, not so high profitability, but still it's really the way to keep a contact to the customer. Crane upgrade is the business where we have had some issues and problems, but we believe in that business. We have the used equipment included in this. You can see that EMEA is absolutely the highest when we think about from the service revenue point of view, but we put a lot of effort to the APAC and Americas, and it's really people business. It's really people business. We have about 1,500 service specialists. I don't call them any more technicians because we invest also to the training of the people. This red spot here, I just wanted to add it there. For something. That doesn't include the dealers and agents.
If I put the dealers and agents, that would be really messy picture. You wouldn't be able to see the map anymore in some of the countries. The red spot, what is that referring to? We have a big customer event tomorrow taking place in Tampere. There we'll also have this inauguration for our service center. It's a remote service center. We will be able to support globally the automated terminals from one location. This is now the support activity what we are pushing. This red spot is not referring to the center of the ultimate intelligence as some people are saying about Tampere. Another opportunity, this is now the opportunity about the replacement market. I know it's very difficult slide really to understand. I try to walk that through.
We know exactly the total capacity, how fast it has really increased during the years. We know quite well that what kind of equipment we have delivered and when we have delivered them to the whole market. Not only us, but also for our competition. We have understanding about the market segmentation. We know the average lifetime of the equipment. It's pure mathematics in the Excel sheet, so you can get to the replacement market. The replacement market will double in coming 10 years just based on this kind of mathematics, and it will reach about EUR 2 billion or EUR level in the next 10 years. Another opportunity for us.
I'm going much more towards the automation and software. When I always talk about automation software, I start with the megatrends. I love them. The mega vessels, we can have a long discussion if it makes sense to the sh-industry to have in the overcapacity of the industry to have these mega vessels to come. It's a matter of fact that they come because of the economies of scale gives the benefits. The latest development is really so that this, one of the leading companies, CMA CGM, just ordered 9 over 22,000 TEU vessels. 22,000 TEU vessels have been ordered. What does that mean to us? It means that the ports or terminals, they are forced to invest. They are forced to invest.
To be able to take care of these big ships coming, you have to do something with your STS. You have to have some automation to be able to handle the huge peaks that are coming to your operations. The big terminals are doing that. What happens to the ex-mega vessels that were visiting these biggest terminals? They go to the next level of the terminals. What happens there? They are not able to handle the business. They need to do some investment to have the heightening and boom extensions and some automation. What happens to the next, next? It's a cascading effect that is going through all the operations terminals. Of course that for the suppliers, it's very good. About sustainability, like was said already by Mikael. I look it from very easy and simple part.
It's the laws and subsidies. If I think about California as one of the leading markets for us, there are both laws and there are subsidies to go to the zero emission solutions. That makes really very strong market demand for this. Like said, electrification, zero emission, this is bread and butter for us. About the industry consolidation, which is now happening, all the alliances, it's a double-edged sword. The next slide I will explain that. In the slides to come, I will explain that there has been some postponements of the projects. The reason is very easy and simple. The whole traffic is redistributed. Alliances are making the decisions which ports will get and how much business. That's why it has caused a lot of postponements and uncertainty to our customers short term.
Long term, what it means is just that the terminals must be much, much more competitive. They really need to focus on their cost efficiency. When you start to talk about cost efficiency, what do you talk about? Software automation optimization. That's long term, it is a opportunity absolutely for us. About digitalization automation. In Kalmar, we will have roughly 4,000 units connected by the end of the year, and now we are getting the data to the Kalmar Cloud. Like said, so we are learning to use that information. Lasse and Soili will be giving more examples about this in the sessions in the afternoon. Absolutely, that's also very important for us. This is exactly the same slide that was presented in 2015.
Yes, I was then participating to prepare this slide, although I did not present that. I'm absolutely fully behind this. I have talked about this with customers from all around the world. I travel almost 200 days a year, so I really want to see the customers. The message is, yes, it's there. Some discussion about the labor cost in this case, but the business case is there. What they have added is really the safety. When I go in front of the customer, I'm not selling the automated terminal based on the cost or savings. I focus on the safety. The terminals are able to make the calculations themselves about the cost savings what they have. The key message is that it's still there. The business case is there. It has not changed.
This very famous slide, Antti will have some questions, I'm sure. We have tried to reconstruct what we said in the last CMD about the market expectations. This is just showing that how it look like. What is the reality? The reality is really such that there has been some of these delays. You can pretty much see the delays here. The reasons that have caused the delays is very clear. Alliances have caused this magical number, 30 moves per hour. With automated terminals, we still struggle with getting to the 30 moves, which is a typical for a manual terminal, but we are getting there very close already, we will exceed that in coming-Projects, that's very clear. I want to emphasize still this fact.
What has happened is really so that based on our sales force, when we have all these different kind of prospects or project to be. The number of the project is higher what it used to be. The automation is getting the message through. When they will be realized, which will be one of the questions asked from me, I don't know. I know that they will come sooner or later because there's the business cases behind. Something very important to understand what has happened in the marketplace, now we have much more brownfields than extensions. They are from the size point of view, they are smaller.
Brownfield means really so that you will go to the operation and start step by step, take this part first, automate that, go to the next one, and then you are able to minimize the risk. You are able to have the operations going on all the time and not losing the revenue. Then there are less greenfields what there used to be. More project, but the average size is smaller. At the same time, there are these brownfields. It means that it will be a long-term development of the whole operation step by step. Delays have taken place, no question about that.
I have to say that a newcomer to this industry, so being here a little bit over two years, I have to say that this industry is also very, very traditional and takes long time to make the decisions and get to the new ideas. My experience from some other industries is so that it's then time to have the question that when the tsunami starts, when the decisions will start to take place. They tend to take place at the same time. Software. Cyclicality. Different kind of earning logics. I don't need to say very much about that because Mikael was already explaining a lot of the points. It really show that it's, I would say, even unbelievable how inefficient the global supply chain is. We talk about the 17 billion of waste.
We used McKinsey to make a study to give some kind of idea that how much inefficiency there is in the, in the, in the chain. A lot of these actions, so we are touching already, but there are a lot of additional opportunities for the software development, for the optimization to go forward. We just see a lot of opportunities from this point of view. What do we have? What do we do today? It really show that we are pretty much focusing on the terminal ocean transport connection, trying to handle both of those. What we want to do is to take the next step. X-Veila is the first step that we will go then to the, to the next level.
For you to give some kind of understanding, if you think about major ocean shipping lines, then we talk about maybe 12 over 10 customers. When we go to the terminals, they're maybe 500- 1,000. If you go to the shippers, we talk about hundreds of thousands of potential customers. There's a big change from that point of view, and we see that as a huge opportunity. Trying to show some proof what I have been telling that we are able to deliver. This is VICT, a fully automated turnkey greenfield terminal in Melbourne, Australia. I'm just using the words from the customers also. The customer said that it was an automation mega-process that was four months ahead of the schedule. Did you hear that? 4 months ahead of the schedule on the budget.
It must be the first one ever delivered in that kind of way. This is very important for us from that point of view that this is finger-pointing. When you have a lot of suppliers coming together making a huge mega-project, it's always that it's your problem, your problem, your problem. It's not my problem, it's your problem. It's finger-pointing is typical. In this kind of when we have the full responsibility, it's my problem. That's really helpful for the decisions because usually those decisions that are not made are causing the delays and that the projects are then late. I love it. Life is good. Thinking about the key points, what I really want to say. We have continued to improve our profitability. Services, medium term, huge opportunity. If the market share is almost minimal, lot of opportunities.
Megatrends, I just love them. They are all pushing towards the automation and software. Our position, so we have learned and we have the full offering without the finger-pointing or finger-pointing only one direction. Thank you for taking the time to spend some time with the exciting world of the intelligent cargo handling. I'm more than happy to entertain with you with any questions you may have.
Thank you, Antti. I'm sure that there will be good questions. Johan has the first one.
Thank you. Yeah, maybe two questions if I may. We have seen in Chinese press this summer one or two projects, fully automated, ones, claimed to be Chinese supplied by ZPMC. Do you think they've caught up in this period when there's been delay on your project? Secondly, do you still see any...
... activities in the near term for any sort of mid-sized project for you to grab? Thanks.
I will start with the last question. I forgot to say that. I don't expect to get an order now for the quarter three. It will be quarter four or then afterwards that we will get. When I joined the company about 2 years ago, I remember that I immediately needed to go to a customer to have a talk about 1 mega project. The customer told me that the decision will be made in two months. Now, next week I'm gonna visit the same customer and he will say that the decision will be made in two months.
There is this slowness of the industry and the risk avoidance that is causing me problems, and I'm not in the position and I don't wanna come here and say that we will get five, 10 projects now. They come when they come. About the ZPMC, I have extremely high respect on the activities of the ZPMC and what they are doing. I have been living in China and I know that they learn very fast. They are fast learners. At the same time, we have to remember that we have a TOS, the Navis, and with Navis by the way, we are partner for the ZPMC, so we really want to be very close with them and we want to have our special offering also to the deliveries.
You are right about that Chinese market is fairly closed to a foreign company. That's a pity.
Yes. Hello. Philippe Saliba from HSBC. One question on slide 46, where you showed the delayed projects. It looks like it's essentially the same numbers of projects that you now expect for the timeframe of 2017-2020. Is there any chance that there could be further delays? I mean, also from this.
Of course.
longer perspective?
Of course. Of course. I'm not in a position to make the decisions for our customers. Again, I forgot something when I was giving the presentation because of being so nervous in front of you guys. This very important point is just that automated RTG project and prospects excluded because we wanted to have some kind of size of the project what we have. Now automated RTG projects are small. There's a much more bigger number also for this more kind of, smaller kind of activities.
in terms of this, in terms of Navis, in the future covering the whole value chain, it looks like a vision, but I guess that is something you would pursue via M&A by buying other software companies.
I just refer to the comments by Mikael.
Okay
... the mergers and acquisitions...
Okay. Okay.
... and the balance sheet.
Then in terms of the whole value chain, in terms of automation, I mean, you buy the automation equipment like PLC sensors and so on. You create the interfaces, I guess, between the TOS to the control systems. In terms of complexity of bringing the TOS and the control systems to the same language, where are we? I mean, it's a very sluggish industry, as you say, but.
From-
... has it developed,
From our point of view, I don't wanna make an overkill with technical answers, we have a TLS layer, terminal logistics system, that is there between TOS and then the equipment. It's a complex system. We have the PLCs, the machine automation there connected to the equipment itself. The most important thing is to handle these interfaces. It's interface management. To have the exact right information in the right spot in the right time. That's why we are doing so much work. For example, in Tampere I showed you this test site. There we have all these different things what we do.
For example, for VICT, we tested a lot of these things before we went to the VICT with our solution to make the TOS TLS our own connections to be really ready for the project. That was the most important reason why the project was four months ahead of the schedule. We have the both. We are able to do the testing, we are able to do the road mapping, and the road mapping for the TOS and TLS part is done together.
Okay. Thank you.
I was able to confuse you with all these acronyms.
No, no. No, no. Okay, we have still time for one more question, from Antti, then we will continue with Hiab.
Hi. I would have 2 questions. First of all, I mean, in terms of true reasons why automation is a little bit slow to take off, I don't know what your view is for capacity utilization in the terminal industry. I've been seeing slides saying it's about 65, and I can understand that if you have 65 you don't add massively capacity. What's your thought on that?
You are right about that point. Of course there's this capacity discussion, especially when the expectations for the container traffic were lower for some time. They are coming back to the much higher levels, also showing the opportunity for the additional investment opportunities. You have to also understand that what the word is here really so that in even that case also, you need to fight for the business when you have overcapacity. The ports need to be very efficient. I would say that it's almost the first time in the history of the port operations that they have really to go to the efficient, cost-efficient solution. It really means that we have an opportunity to have a competitive package, automated terminal going for the business.
Mikael is correcting my answer, so let's listen to that now.
Mikael, please take a microphone.
Maybe a word of warning. I've been looking at this port capacity issue in the past as well. One finding I was that the port investment and port capacity is partly commercial, partly very political issue as well. If you actually look at the overall port capacity, people are continuously building that because even places like Finland, we probably have, you know, way too many ports, and same is true for many different countries as well. If you look at the capacity utilization of some of the key ports, that's probably a reasonable number to look. Overall, sort of the capacity number is not generally has been when we looked at a very good indicator on the investments.
Thank you, Mikael.
Thank you, Mikael and Antti. I think now it's time to continue with Hiab.
Thank you.
Roland Sundén joined, or became the President of Hiab in 2013, and actually, Hiab's operating profit is now six times higher than in 2013. Good work, Roland, but I know that you are capable and willing to deliver more.
All right. That was a good introduction, wasn't it? Yeah, I'm Roland Sundén, I'm heading up the Hiab business. Those of you that were here last time, remember me talking about what we have done up to then, and also made promises, what we're gonna do the next couple of years. I'm very happy and proud to say that I can tick most of the boxes. In many areas, we have actually exceeded our expectations when it comes to growth, profitable growth, and very good cash generation. That's part of my three messages today, is that we have a very good base on how we're gonna grow in the future in a profitable way. In a nutshell, if there are three things you should remember, these are the three things you see on the chart here.
We have grown. 2015 - 2016, we grew 12%. Our order intake first half this year was up 10% compared to last year. We have also grown quite well on profitability, our cash generation is, when I can compare to other industries I have been to, in a very excellent way. We're generating cash to grow. We have taken that cash to invest in a complete product renewal. Those of you that were here in November 2015, do you remember when I talked about us in 2014 having not such a good situation on our product portfolio because 60% of all our products were 10 years or older?
At that time in November 2015, I was standing out here in London and saying, "In 2017, 70% of all our product is gonna be three years or younger." I can stand in front of you with a smile on my face and say, we're gonna achieve that this year. It's one of the biggest renewal of a product portfolio I have been around, and I've been in agriculture, construction equipment, even aerospace business, almost during 40 years now. We're very proud of that. We're also very proud of that we have more feet on the ground when it comes to making service, taking care of our customers out there in the field, in particular in the US, but also in many main European countries.
Also, there on the service side, we have done a very good job, right? There are some fantastic opportunities to grow. I will talk about organic growth opportunities through the next couple of slides, maybe I should just pick up what Mikael was talking about before. Actually, we have a very structured analysis done now. We have a handful of targets that we're gonna go after. We know when we're gonna go after them, we know how much we're gonna go pay for it, right? We completed one right at the last second in Brazil. We got it dirt cheap, we are entering into a market that is just fantastic. Has a fantastic growth in the future. It's very down now, it used to be the second-biggest market in the world.
This is, it's an example of how we are just waiting for the right opportunity, and then we go for it because we have the cash to do so. We have the support from Mikael and his board and so on. All right. Those of you that were not here last time, next slide is a little bit of a Hiab 101. This is where we are. We are quite a, still a European company. You can see that on the chart there. We are still quite big in Americas. Majority of that is in the U.S., but we are very big in Canada and also growing our business in the south. We would like to grow our APAC business. It's too small, and that's a golden opportunity we have in the future.
We would like also to grow, like Mikael was talking about, and Antti too before also, in the service business, of course. I will dwell on that a little bit more. Service makes up basically 20% of our business, a little more, 22%. We have put now a lot of effort to also grow that even faster than our equipment business. It's great to see that we, in 2016, we passed the EUR 1 billion benchmark or milestone. We're very proud of that. Maybe we're even more proud of 14-point something % Operating profit still going the right way, but more importantly, we are almost making on a LTM basis EUR 150 million. We're very good on converting that into cash as well. Okay? It has been a fantastic journey. Micke kicked it off in 2013.
He brought me in, I didn't totally mess it up, apparently. It was actually an interesting feeling. Micke and I, we talked about it. It was like waking up a sleeping beauty. There were so many things there that the past leadership didn't, for some reason, act on. Was lack of action on the strategy that was already in place. We saw the growth margin really start taking off in May 2013. Thanks to Micke first and then me, we took that growth margin and actually came down to the bottom line, too. We grow the bottom line quite well. To our surprise, in 2015, we start growing the business. I'm sure you're gonna ask me questions about the currency impact in the past and also in the future.
In the past, in 2014 to 2015, yeah, it was a little bit of a free ride, but only a fraction of it. Actually, the currency had an impact of 3-4% growth out of the total 10-11% growth. Since then, this is pure work by my people to grow this business. 12%, like I said, at last, compared to 2016-2015, and we continue growing as we speak. Service side, yeah, flat percent of equipment. That's not so great, Roland Sundén, right? You might think. Don't forget, though, that the installed base has declined because in the past, our equipment sales declined and the installed base thereby also declined. It's picking up now again.
9% growth is not too bad after all, because when you're on the declining market with 3%-4% year-over-year deterioration of the total installed base, yeah, then it's pretty good. 2018, 2019, going forward, we're gonna see a grow on the installed base. We have a lot of interesting thing now to further penetrate that market. Let me talk about it. Actually, let me talk about the market and how we're doing. This is a slide that those of you that were here in November 2015 might remember. I'm gonna go through it quickly. It's structured in a way where you see on the horizontals all the business lines, and that's probably one of my most important decision.
Mikko Pelkonen will talk about that in the breakout session when it comes to leadership, is that you organize yourself to meet whatever the customer and their business so requires. We organize ourselves in five business line with five dedicated team with a complete profit and loss and cash flow statement responsibility. That has really pushed well and taken off this business, right? Let me go through the five business lines. Loader cranes. What is that? Well, it's a steel structure powered by cylindric hydraulic cylinders, right? Used to move the materials from the ground up on the flat pad. You see them every day in London, I'm sure, and they're sitting behind the cabin. Biggest market, we have a very strong market share.
We are the biggest in the world when it comes to number of cranes, because we are huge in the mid and small range. We are growing as we speak in the big range. Overall, we are probably number two when it comes to revenue comparisons. Good business, fantastic brand. We're well known for being, having the best product in the market when it comes to controls and drivability. Second market, in size is tail. It's quite considerably lower. It's a little like a commodity product. I'm sure you saw several of them when you came here today. It's a simple bed that you just fold down and you move the equipment on it and then lift it up and push whatever you would like into to the body of the van, right?
It's a good aftermarket and service business. We have fantastic market position in Scandinavia. We're very strong in U.K., we're very strong in the U.S. It's three different product companies and brands. What we're working on now, without revealing too much, is actually how do you globalize that? How do you leverage that business? How do you introduce more common parts and platforms and so on? Demountables is a fairly simple product you might think. It's just a big hook, a big steel arm that just pull out the container onto the truck chassis, as you can see on the picture there. Quite sophisticated requirements and do require a lot of engineering efforts. Very strong brand, very strong in Europe. We see fantastic penetration opportunities outside Europe, and we are pursuing that as we speak.
Truckmount fork lift is a very interesting concept. It sits back on the flatbed. With the push of the button, it comes down, you sit on it, you take the stuff off the flatbed, and you drive up, even if it's a rough terrain, to the construction site. It's a very versatile product. It can be used in lots of different applications. What's wonderful with that, it's still a niche product. We are very dominated and we see good opportunity, and I will talk about that a bit later, on how we can develop that product into new applications and new markets going forward. The forestry crane business, which has been a little bit a problem child for us, thanks to ignorance of former managers and leaders leaving that alone, just moving it around from one site to another, never doing anything about the product.
We are now introducing new equipment that are revolutionizing the way that people in the forest are using cranes. You know what? They don't have to even go out of the truck cabin any longer, out in the snow. They can operate the cranes remotely by virtual reality goggles in from a nice and comfy cabin. A forestry crane driver nowadays, he just sit without shoes in the cabin, driving. It's a fantastic response from the market. Now we are really taking market share in many of markets around the world. All right? Not only that, we have improved our market position, we have a new product offering in place, but there is also mega drivers that is helping us going forward. It's very much like Antti was talking about before. In here, the biggest mega driver is urbanization. Listen to this.
One or one and a half million of people are moving into the cities every week. In China, the forecast next year is that over 21 million will move from the countryside into the cities. Guess what's happened? Cities are getting more and more crowded. Our customer are having more and more difficulty to handle their businesses, and this is where we come in. This is what the breakout session later today is gonna be all about. How can you use enabling technologies like digitalization and connectivity and come up with new business solutions, right? We are working like maniacs on that. Jan-Erik sitting back here is going to be part of one of the breakout session and discuss that. I will also give some highlights about that, okay? On the market itself, I'm sure you have some questions.
I'm not gonna, on that a little bit later, some specific, maybe answer that. Overall, North America is holding up. The Oxford Economics that is doing a lot of construction forecasting, you're probably very familiar with them, they took down their forecast, but still it's 2.8% growth this year and 3.9% next year. The number of house starts in July was down 4.8%. Statistics is coming out as we speak. I'm sure it's picking up again. The number of house start, which is probably the most important metrics for us in Hiab U.S. business, if you look at that metrics, even though it was a little bit down, it's actually up big time from 2000, 2009, 2010, 2011. It's on a much more healthy level.
On top of that, the inventory of new houses is very low. I'm pretty hopeful the market is gonna hold up. It's not gonna boom, but it's quite stable. In Europe, if I start from the south and go to north, Spain is doing fantastic. It's coming back because they have been through a big crisis and now they're finally getting their act together and they need to buy more hardware. France, we're doing excellent. Germany, it's a strong demand. Sweden, Scandinavia, very good too. We are just totally sold out in Benelux, which is kind of mind-boggling. We are actually sold out in many countries in Europe right now, meaning that we are a little bit struggling of increasing capacity and particularly with our suppliers. It's a positive problem, right?
Even in U.K. we're doing all right. Key accounts in the U.K. is a little bit hesitant, but on the commercial side, we have done a very, very good job, so. On key segments, I'm not gonna dwell so much about it, but you can see on those key segments I have listed, we are very strongly positioned. May I mention two of them? First, waste and recycling. The growth of waste and recycling is probably gonna be at least two if not three times higher in countries like Eastern Europe, China, India. What we can do as a company, we can take the best of breed, for instance, from Netherlands, copy and paste, and adapt that to those countries. Those countries are not gonna do the incremental things.
They're gonna go for the final solution, much more sophisticated. I think we can offer them that. Governmental business, yet to our surprise, particularly in the U.S., that business is picking up again. It used to be a very high portion of our Hiab U.S. business, just faded out, died, and now it's actually coming back a little bit, so good margins and a very good business for us. New applications, yeah, very quickly, one example on the truck-mounted forklift. It's interesting to learn that in Europe, that product, the truck-mounted forklift, is very used in the gas bottle industry to move stuff around. In the U.S., zero. Guess what we have done? We have a small team in the U.S. teaching customers that are still using this long ramp and the wheelbarrow to move gas bottles.
Why can't you use something more less manually intensive and much more effective? Likewise, in the U.S., our Princeton brand, which is a sub-brand of the truck-mounted forklift, we're using very much in the turf industry. In Europe, we don't do that. This is a good example how we can expand this concept, expand the market, because we need to, since we have such a high market share on the truck-mounted forklift in the world. Then service solutions, going from parts to maintenance contract, like Antti was talking about, to repair and maintenance, to more digitalized on-demand kind of service. Take a life cycle approach. Put yourself in the customer's shoes. Now, how can you reduce the cost of operating your cranes and coming up with a new business solution? I would like to talk a bit more about that.
Before, esp ecially for you new to Hiab, this is service 101. The split is very much following what we see on the equipment side, and you can also see the split between the different characters. We really would like to grow, of course, the maintenance part even further, and in particular, like Micke was saying, the service contract as well. What is important to be aware of is that we have actually increased a lot of our people on the ground, because that's what you need to do in order to take care of these products. So in essence, we have 1,500 service technicians worldwide, touching our customers' products every day.
Fraction of them, less than 400, are our own payroll, and then we use third party or dealers to do the rest, right? We have actually increased that. What we're working on now is to make sure that we align the equipment route to market with the service route to market and converge the footprint and get better efficiency. Put good tools in the hand of the service technicians, so they can operate more effectively. Let me talk about that, new tools and new way of doing this business. The first Micke was already talking about is a fantastic success. I think about you, Christian Björn, sitting there in the back. You will be part of the service workshop a little bit.
Thanks to Christian and his team, done a fantastic job on creating a state-of-the-art web workshop. Where you as a owner can just click into your crane or the picture, you don't even need to know the part number, and you can click yourself, and this is the stuff I need. I like to have this filter and these bolts and nuts. Then it comes a friendly suggestion, maybe you should buy a service kit because total savings is so and so. It costs you a little bit more, but why don't you do it? Actually, you know what we can do? We can trace how customer is using the tool, and we can learn from it. It gets even more exciting. Since March 2016, we launched the ProCare.
Me coming from the agriculture, construction equipment, in particular aerospace industry, Jesus Christ, we did that 20 years ago. This is where we are in load handling. It's a little bit like the virgin countries. We don't have to invent things from the beginning. We have very good people that knows this, including myself, and we just go for it, right? We have a 4-tier offering, and the highest is we take care of everything to a fix fee, a fixed fee per month in repair and maintenance. Of course, you need to know how the equipment fits and are used, and you have to have good, solid terms and conditions. Otherwise, it bites you, right? We have such a good knowledge of our product now, so we can do that.
It's a fantastic opportunity to have the customer focus what he and she should be good at. We take care of the hardware and the repair and make sure it works all the time, right? It gets in particular interesting. Here, Jan-Eric, and also Anna Almlöf, that sits somewhere in the back. There is Anna, gonna talk about in the breakout session. Anna is new to us, coming from Gunnebo, Ericsson brings a very interesting perspective how to do this going forward. It's gonna be fun for sure for you to be part of that breakout session. Okay? When you take a ProCare contract and you combine it by the cranes, the fleet being connected, that's really when you as a service provider can make money and still make a lot of savings for the customer, right?
What we're talking about is actually that you as an owner of a fleet, for instance, we're focusing now on fleet owners in first round. You can have an iPad or you can have an iPhone, and you can have total control on how many products you have, what's happening with the products out there, are they used or not? All right? You have that in real-time. We at Hiab, of course, we're monitoring all the cranes around the world in the same way. Let me try now to explain this little bit of a corporate heading there. How to unlock value through HiConnect, right? What do I really mean by that? I would like to take an example. Our friend, Antti, from Danske Bank, he is from now on owner of 1,000 Hiab equipments, right?
We know each other a little bit. Antti has been part, and his team, of the pilots that Jan-Erik will talk about a little bit later. The pilots have gone on now for six months. Antti, you know what? You think you have 1,000 Hiab equipments, but it's actually 995, at least according to my records. Something has happened with the 5. That will be quite important to know. I know which part of the world that you don't have these cranes any longer, and we need to figure out and help you what happened with them, right? Antti, if I were you, I would really think through what's happening in the London area. In southern London, your utilization rate, Antti, is 10% lower than north of London.
I think you have an issue of not having the right equipment to serve those customers' demand that you have happened. You probably have taken maybe copy and paste thinking that the north Londoners are exactly the same as the south ones, right, when it comes to load handling. That's not right. I think we need to work on that. By the way, I remember last week you told me, Antti, that you have hired John Johnson, a new operator. I would be a little bit concerned about him. If I look at the dashboard here, he has the last three days been traveling through London streets with a hook lift on his big, fantastic truck halfway up, and that is a no-no. Somehow he has rigged the system because system-wise it's not supposed to even be possible to do.
Seems to be a smart guy. You probably should, Antti, have a serious talk with the guy, right? By the way, he didn't go to the safety training last week either. Right? This is the communication we can have. I can sit back together with my team and actually, Antti, I spent a week with my team and we studied your situation in the U.K. You remember you talked to me a couple of weeks ago that you wanna have twenty ten fifty-eight loader cranes. You know, these big, long beasts that reach out 35 feet or 35 meters. I don't think you need that. I think if I were you, and looking at your utilization rates and what the demand seems to be in the market, you only need 10.
You need to buy another 5658, which is a more sturdy crane, less outreach, and it gives you more flexibility in your fleet. You're gonna save X million on that or X 200,000-300,000 maybe, and operating cost is gonna come down. This is how we are gonna build customer loyalty and people be even emotionally affected to our brand in the future. They already are, but I think they can go. It would hurt me a little bit, I would probably miss my monthly target if I were a sales guy in the UK, but I know I have a customer for life in Antti, right? You will come back and buy more stuff from us. Another example, and this is a competitor to you, Antti, sorry about that, but that's Graham Bell from Travis Perkins.
Anyone know Travis Perkins in the room? It's a very big company. Big merchant in the building industry. We started the business in 1993 selling just Moffett. In 2013, we sold our first crane. Step by step, it took forever, they finally decided maybe these Hiab guys are, even though they speak kind of funny English, is not so bad after all, right? Doing similar pilots like we have done with you, Antti, we have actually turned them around. Because we can show, and you see his statement there. If you have a fleet of 1,000, and you have a couple equipments going down a couple of months every month and sit there on the yard for three, four days, it's big money.
It's big money that we at Hiab can help to save. I met their operation director. He was actually part of the Cargo Hack. He is extremely interested to further develop different applications, including a positive feedback to the operators, where the operators actually are collecting points and will be rewarded when it's handling the crane in a gentle and productive and good way. The operator can, every day when he's finished with work, he can go home to his wife and say, "I did a pretty good job today. I earned so many coins, and I'm probably gonna get a reward for doing that." Hope we can introduce that app very soon. All right? Just wrap up. Basically three things: fantastic performance, invested in equipment and service, and we have a great opportunity in the mega trends.
We're gonna go for Brazil and develop that business. We have several projects ongoing in China that you're gonna see hopefully soon taking speed. We're gonna continue with the truck mounted forklift example as a inspiring example into new applications, and we're gonna be much more a life cycle service provider going forward. Thank you.
Thank you, Roland. Time for questions.
Yes, this is Tom from Carnegie. I have two questions. First of all, can you tell a bit about your JV in China? I mean, it's been, you know, a lot of talk, you know, early on, we have not seen that much. I'd just like to get an update on that. Secondly, I mean, I understand you have great growth opportunities and you are very profitable, et cetera. The market now expects that profitability will continue up, clearly if you look at market estimates. It's obvious that you have a big headwind manufacturing most of your goods, almost all, to my understanding, in Europe, and you have 40% of sales in the U.S. and we know what's happened to the dollar.
We know we have such a short lead time that you must have sent out, you know, emails now, "Please raise prices by, you know, 10%," you know. Does it really work, you know, that way to lift price in the U.S. in this kind of a situation?
Well, yeah, should I take the last question first? Because that's the most difficult one, so if I pass that one, I'm gonna answer the second one too. Yeah. No, certainly, of course, there is a headwind when it comes to the dollar, no doubt about that. Okay? First of all, U.S. business is not 40% of our business. It's actually considerably less because we have Canadian business and we have American business too. On top of that, our service business is percentage of the total sales in the U.S. is much higher than the average over in at Hiab. Actually, service business is quite vertically integrated, meaning that, I mean, there's service technicians on the ground. What we're gonna...
We are doing right now, and doing even more in the future, is sourcing spare parts also in the U.S. Actually, for your information, we're opening up a new distribution center in the States as well. We are taking a lot of actions to mitigate the impact of the dollar. If you take the range of exchange rate between the dollar and the U.S. that you find in the open literature, so to speak, or in the press right now, and apply that on our business model, given what I just described, we are talking an impact on the bottom line between 10 million-20 million if I take it, on the current performance level and the mix of product and so on as well.
How do you... Of course, then I have to grow business to compensate for that, and that's what we're gonna do. We still believe that we are certainly gonna grow in absolute on profit, also in the years to come, even though the US dollar is going the wrong way, so to speak. Again, apart from 2014 to 2015, we haven't had a free ride on our improvements at all. On the contrary, last couple of years it's the impact from the currency has been very small, so.
Sorry, I didn't understand. What was this 10 million-20 million negative impact? What was your definition of that?
That's.
Was it from, the current dollar rate compared to a year ago or what?
No, it's what the average dollar rate has been up to now, and then what if you apply what people are thinking that the future dollar rate can be at high and low.
Mikko, do you want to add anything to this currency discussion?
Yeah, it's basically like Roland.
You have the microphone. Right.
Can you please provide the microphone to Mikko?
Yes. It's basically like Roland mentioned. If we take the, let's say, 12 months average dollar rate and then the current level, we would have roughly EUR 10 million-EUR 20 million negative impact on Hiab's profitability next year. Taking the stronger US dollar in the beginning of the year and now comparing to these current levels, if this would continue now throughout 2018, it would impact roughly 10 million-20 million on Hiab.
All right. I have one more. There was one more. JV in China, that takes more time than you think. We have now completed the total transfer of the stiff boom technology. We have a good team in place. Orders are coming in. I think we were a little bit too optimistic on our price positioning. We are adjusting that, and we have some very, very good leads, in particular can leverage on our partner's, dealer network.
Can you please just clarify still on this dollar that, yeah, just to make it simple, do you expect the margin progression to continue as the market expects now, given this headwind? Are the other kind of tailwinds so strong that the margin progression can continue next year and?
I'm not so sure I know, what do you mean by margin progression?
Just that the EBIT margin goes up compared to this year.
Yeah. You know what? When you are in, on these margin levels, now we're talking 13%-14% compared to when you were 3%, the margin is not that important anymore. It's about how much you make in absolute. We are confident we're gonna improve also next year on our profitability in absolutes too, given that something totally different happens on the market. All right?
Thank you, Roland. I'm afraid that we need to-
Continue now. We will have now very short break. We are running a little bit behind the timetable. Please be here already back at after eight minutes, so 2:20 P.M.
Welcome back. I hope that you had the possibility to get some coffee. We will continue with MacGregor. Michel van Roosendaal has been leading MacGregor since 2015. Michel's educational background is he has master's degree in aerospace engineering, so he's practically a rocket scientist. I'm very positive that he can solve any problem. He has been leading MacGregor successfully throughout the recent storm. You may know that the market situation in marine industry has been quite challenging, but I strongly believe that MacGregor is coming out of this storm stronger than ever. Michel, please.
Well, thank you for coming back. Two Years in this role. Two years, and gee, what a ride it was. Oil price, $100, going down to, like, 25. Baltic Dry Index, a very important indicator for us. If it would be a heart rate, you would medevac the patient straight into the emergency room. Ordering of new vessels, coming to a virtual standstill. In that environment, MacGregor performed. If there's one thing I'm proud of, is that we woke up that proud engineering organization and instilled on top of that a sense of financial performance, and without losing that appetite for innovation. We are the market leader in our industry. Every second vessel on the ocean has a MacGregor system, a product of some sort on board.
We enable conservative estimates about $5 trillion US dollars of global trade. That's 12 zeros. $5 trillion. We are relevant. We've been around since 1751. We've seen a few cycles, I'm sure we'll see many cycles to follow after this. We have been able to continue to invest, and we'll come to talk about that, innovation and also in some small acquisitions. It's maybe a little bit bold to say, maybe a bit bold, but with all the streamlining we've done in the organization, I think we're probably in the best position ever to take benefit of the recovery of our markets. Let's look at some numbers, not pretty numbers. Order rate, low. Order book, not very bad, but not great either. Still, a percent and a half of operating profit.
Not something that is a given, as some of our competitors sadly know. You look at a few things here, the geographical distribution, you'll see the strength we have in Asia Pacific. Really being present with not just the Japanese and the Korean shipyards and ship owners, but increasingly with, if you want, the Chinese ones. You then also look on the sales mix, you can perhaps say that on the offshore side of the house, we suffered perhaps a little bit more. Let's remind ourselves where we all play. Avocados from Brazil, furniture from Asia, cars crossing the ocean, military equipment going to some theater somewhere, holidaymakers going on a cruise. They are all basically traveling on board of a ship that has a MacGregor system on board.
I would also invite you to invent a uncertain type, except for some small dinghy for which we have nothing. We're there. Also in the offshore side, we have many solutions, material lifting, mooring systems, and we're also in some smaller segments. That's interesting because we are in this big breadth of segments, we actually benefit from some of the smaller segments which are doing well, like fishery or the ro-ro segment. Important to realize is that we are, in virtually all these segments, the market share leader, number one or a very strong number two. Let's look a little bit on the long-term trend. You can really see the impact of this cycle. From the height to where we are right now, a staggering EUR 450 million less, and we maintained that 1.5% profitability.
Again, not easy. Also there is an impact of that in the real marketplace. You'll see many things happening. A proud Korean company, Hanjin Shipping, went belly up. You'll see a lot of consolidation in this industry. There is many examples. Just recently, COSCO bought Hong Kong-based OOCL. Maersk bought one of the two Hamburg-based, Hamburg Süd. At the same time, Hapag-Lloyd together with UASC, you can go on and go on. That has also not just an impact on volume, it has also an impact on margins. That is, of course, a hard environment to operate in. If you look on the service side, John Carnall will be here with us to talk about service in a much more detail, I come back to talk that a bit later. We see that service actually gone up.
It's, if you like, not exactly at the level we want it to be, but it's gone up. Also the percentages have gone up. In part, of course, because of the fact that on the equipment side, we've lost a little bit, but still, we're gonna talk about the foundations we're building for our service business. We'll see the overall trend being positive. How did we maintain that profitability? 3 main thrusts. 2 years ago, I already talked about the asset-light business model. What does it mean? We basically, in our cyclical business, have a strategy to not own our own manufacturing assets, and to a degree, are also basically using external engineering, if you like, outfits to help us. That is important. It allows us to scale up and down rapidly.
If you have your own factory, you might wanna, if you like, delay some of the tough decisions. We can scale up and down quickly. Unfortunately, of course, I have to say scaling down rather than scaling up, but that's life, I guess. Active margin management. Another thing what the team achieved is that we actually, in this environment, managed to expand margins. That is not very typical. When your top line goes down, you'll see underabsorbed or unabsorbed cost hanging around. To bring it on a human level, if you're an engineering team working on some system and you know that, if you like, after that, it's a bit of an empty pipeline of new projects, you might just go on and make that project even a bit more perfect, sort of work a little bit extra on that one. No. We have invested in methodology.
We have instilled a sense of discipline. Let me talk about one example in which I was personally involved. We had a mooring system for one of these gigantic oil rigs, one of these big beasts, more than 100 by 100 meters, going to the Gulf of Mexico. When the new team picked it up, it was a complete disaster, a train wreck. We were late, we were over cost, and more importantly, we were, in fact, making us being late the cause for our customer to be late as well and exposing them to very significant liquidated damages. Of course, they would have come to us as well. That, we would not accept to happen. We put our best people on the project, but also started to use methodology which we hadn't really used before, more discipline.
Amazingly, amazingly, the team turned that around. It was quite a big effort. People working weekends, our supplier in Poland working very hard. Lots of extra effort going in there. I myself was involved, of course, a little bit from a distance. At the end, at the closeout call, our customer was after they expressed that they were surprised, but they were very, how should I say, very pleased with the fact that we turned it around. What happened is we avoided liquidated damages and we got exchange orders which allowed us to recover the cost overruns we had earlier on. We managed to turn it around, and that type of stories, basically, that discipline in this harsh environment. You have to realize, most of what we do are not off-the-shelf products. We have systems we build.
Each time it's a bit different, if you like. We cannot survive without methodology, without discipline. That active margin management and that focus on that element has really paid off. The third element, what we're putting in place here, is what we It's almost a euphemism, what we called our streamlined global structure. In the past two years or so, we have to separate ourselves from over 700 people. That's sad, because these 700 people, they were loyal MacGregor employees if you like, people who worked hard and basically it was not their fault that the cycle went the way it did. We took those decisions. We're now sub 2,000 people in head count. Those 2,000 people, they work for a company that's profitable and that has a future.
The fact that we proactively took the decision, in the process we also divested two smaller entities which were in sort of like non-core activities and also had a bit of manufacturing there. Basically, the fact that we proactively took those decisions allowed us really to be adjusted in terms of cost structure. Again, a key contributor to the fact that we can be, if you like, profitable where we are. On top of that, and we come back to that in our service portion, we also invested in a, if you want, a shared service center for our service business in Gdansk. Are basically benefiting from a lower cost structure there, economies of scale and better professionalism. We are also adjusting our cost structure, our people structure in a positive way.
With these 3 elements, asset light, margin management, and if you like, our global structure, we really managed to keep our profitability. In a way, better positioned, as I said at the very first slide, than ever before when things start to turn for the better. Not just that, we also are winning in the marketplace. We know that demand side is down, but we are expanding a little bit the scope of our market. If you look on your left, it's quite nice, we had to write it down a little bit like this, but I'm very proud that you'll see that in our press release this morning, we announced actually a big win for our RoRo division. Not for a traditional car deck, but for the linkspan, which is basically the complementary structure, very similar in design on the quay side.
This is in Calais. It's a project which is worth more than EUR 25 million, so big for us. If you think about it, very important, Calais, first of all, a lot of traffic, and secondly, a big tidal effect, if you like, 10 meters up and down. You have a big structure there on multiple levels, and they chose MacGregor. They didn't use some land-based engineering outfit. No, they chose us. Great example, and it's just one example. We've done more of these in Japan and Australia and some other places where we are expanding our business, if you like, and finding opportunities which are helping us in this difficult environment. On the other side, you see a win which we announced a few weeks ago in Bangladesh. Let's reflect a little bit on our oil and gas offshore business.
We know that the dollar value of the barrels of oil has gone down. Perhaps getting oil out of the North Sea, not something which is gonna come back in the same way as it came back, if you like, so many years ago, with the whole Shell business being there. You also see a fuel mix change happening from oil to gas. At the same time, global consumption of energy is continues to rise. We are shifting our focus on new opportunities, in this case, on a regasification unit, which is supplying gas into Bangladesh. There's not a big infrastructure over there, but the population is growing, and gas is used typically more for, if you like, air conditioning, for all kind of other appliances and also for some domestic cooking here, or it is more on the car side.
By shifting our focus, and very importantly, by also investing in our abilities to do so because this Bangladesh project wasn't able to be won by us if we wouldn't have invested in acquiring a small company in Scotland called Flintstone Technology. Flintstone Technology basically brought us this turret technology which we didn't have before. That's what I meant when I said earlier, we as Cargotec, we as MacGregor, despite the fact that we're living in a difficult phase of the cycle, have the ability to continue to invest, and that investment pays off by a win like this. Difficult environment, but we're winning in the marketplace, and we're proud of that. Let's have a look at the long-term perspective.
If you look at these two small graphs on the bottom, you'll see that the average of the last 20 years, and that is the average of the number of vessels which were being ordered and ultimately delivered, we don't feel that that level of vessel ordering is coming back. We do see a recovering. We're at this point, pretty, I should have said, a low level. You could argue that we're so low that can't really go lower, if you like. We'll see some indicators that things are recovering, but it will be a cautious recovery. It's a very fragile mar-environment. The main message is here that we're very cautious. Why is that important? It's also important because we are cautious with expanding our own cost structure, as I've told you before.
We are, again, cautiously optimistic that we see a recovery happening, the same on the offshore side. The fact, if you think about it, that the number of vessels is not at the same high level as it was before is perhaps not such a bad thing after all. If you think about a large container vessel 20 years ago in 1997, 1998, it was much smaller than a vessel is today. For us, the scope of a smaller number of vessels might actually still be of interest to us in the sense that there is more, if you like, hatch covers, more latching bridges on these container vessels, and then again, these vessels become more sophisticated too. A very cautious optimism is there, and we'll see things turning. Let's talk a little bit about service.
I already showed to you that service is growing. We're not extremely pleased with the rate. We'd like it to grow faster. Of course, we live in a reality where many of our customers are also very frugal. Cash flow-wise, they simply have little to spend. That's a direct impact on how many spare parts we sell, et cetera. We are, interesting enough, expanding as well. You see in that project category, you'll see VDRs. These are voyage data recorders. A new product, a new extension to our range. That came to it through another acquisition, Interschalt, which basically has a component, an important component in MacGregor, and is contributing nicely and expanding our footprint. Another opportunity I'd like to point out is if you look at the geographical mix. Remember when I showed earlier our strong presence in Asia-Pacific.
If you look here, it's not there, but that's an opportunity. I talked about COSCO buying OOCL. The Chinese owners, they have ambitions too. We have quite a few opportunities to grow in the service business, and really the first starting point for that is our footprint, our global footprint. We're really everywhere where you want to be. On every conceivable port, you have a MacGregor person or an agent over there. Let's have a quick look at what we're doing on the service side. Service, perhaps 5 or 10 years ago, was maybe an afterthought. It was really some giveaway we did in order to get that next juicy, big crane order, right? We have to change the mindset of the people, and John's organization is also called Global Lifecycle Support.
Our ambition is to be with the customer throughout the lifecycle and basically with MacGregor services, products, and solutions, make our customer more competitive and basically make it more profitable. I think we're succeeding in doing that, and I'll show you an example in a minute. What we're currently doing is basically building the foundations, simply making it easier to order stuff, have a MacGregor name on each and every component, have this shared service center ready to basically rapidly send parts to wherever you are, et cetera, et cetera. We do some more sophisticated stuff, drone inspections, and ultimately our objective is to go to what I would call advanced services, where we have uptime guarantee or basically systems that improve themselves.
Let me talk about a great example of where we as MacGregor are helping our customers to be more efficient, to be more profitable, that's Cargo Boost. What is Cargo Boost? Cargo Boost is a methodology where you enhance the capacity of existing container vessels. Existing. These are vessels which have been built, designed by competent naval architects and commissioned and which are sailing. What happens is that the owners of these ships, they come to MacGregor. They don't go back to these naval architects. They come back to MacGregor and say, "Hey, MacGregor, for our sailing routes, we need a little bit extra capacity. We need in order to balance our routes, something extra.
Can you do that?" Our team went to work and did that, adjusted and therefore expanded the capacity of the vessel, adding 500 TEUs, or if you want, 250 large containers, adding 2.6 million to the bottom line every year for each of those vessels. That is very, very important for these shipping lines, given the fact that profitability is not a given in this industry. It's once more MacGregor who has the solutions for that. That's the type of value creation interaction we want to be engaged in with our customers over the life cycle of their products, of their ships. Let's talk about MacGregor Digital, and let's talk about a traditional MacGregor product, a crane. A crane is a great product. We have it on our offshore side. We have it on our merchant side.
Big cranes lift big stuff. Bigger cranes lift even bigger stuff. It's the dream of the mechanical engineers here, right? Nothing digital there. That's in essence what the basic offering is of our portfolio. Now let's try to use data, okay? The first thing to do is to connect the crane. If you think about these cranes, these cranes are operating far away, perhaps in the North Sea. When the crane has a problem for whatever reason, you need to helicopter in a specialist, not a technician, a specialist indeed, right? That's expensive. It's to a degree, also dangerous. Now, with the ability to connect a crane, and not necessarily very easy to do on the North Sea, you can look into that crane and have a methodology how you can fix certain problems. Not all, if you like. That basically helps you.
It reduces your total cost of ownership. The same is happening if you think about collecting data where I can do predictive and preventive maintenance. At the end of the day, I still have a crane. My cost of ownership has gone down, but the crane is still a crane. We go a step further at MacGregor, and we're really using that digital transformation in order to have the crane also be optimized, make the crane smart, improve and optimize the number of movements it can make, adjust the crane to weather circumstances or perhaps to the load it has. That's really the journey we're taking.
We are turning a traditional mechanical product into something which is really smart, where the total cost of ownership goes down and ultimately it's optimized. Later on in the innovation digital sector, Alexander Nürnberg is going to talk to you about some more exciting examples. Let's take one more example here, and these are three elements of where we, as MacGregor, have continued to invest. This is on the innovation side. The first example is a nice conduit of the previous one. It's autonomous cranes. Now, let me take a step back. You've probably read that we are engaged in autonomous vessels, and that's a real trend, an important trend. Perhaps not something for next year, but over the next 5, 10, 20 years, that is a trend which is going to be very, very important.
It makes no sense to have an autonomous vessel if you still need a crane driver. In order for an autonomous vessel to really have an impact, you need autonomous cargo handling systems. We're probably the only and the first company who's engaged in that. This not some laboratory thing. We have a real launch customer. We're working on that one, and you'll see soon those autonomous cranes in action. Second example, sensor pads. Basically taking measurement of the load of the containers, helping it to balance the ships and also for compliance for customs reasons. Thirdly, after all, we're still mechanical engineers, fiber rope cranes. Some of our cranes with steel cables go two, three kilometers down to the sea. At the end of the day, after two orthree kilometers reaching down, you can lift nothing.
You can only lift your steel cable. That's, of course, not the point. If you go to fiber rope, which is much less in weight and density, then I can maintain a lifting capability or actually expand that. That's not something the industry has, and we're working on that one. Three great examples, once more, where we are investing time and resources in order to be having a better and more suited portfolio. Blue growth opportunities. We've talked about our core business, but what's really exciting in this world is the additional opportunities which there are. In nice coordination with BBC, we had them talk about one of the great opportunities we have here, which is offshore wind. Offshore wind is important. Why is offshore wind nice?
It's better that the wind doesn't carry a name like Irma, all these, if you like, tornadoes, etc., they prove a point, right? Winds on sea are stronger than they are on land. For windmills, it's better to be on sea. We have another problem. People on the beach don't like to watch at windmills, you have to go a little bit further out. You are in deeper water, expensive to build a deep structure on which you put your windmill, that's where MacGregor comes in. Applying our technology we developed on the oil rigs, we allow floating windmills. In Peterhead, off the coast of Scotland, you'll see on the picture in the background, if you go to the BBC page, you see also a little film around that.
It's our mooring systems which basically enable floating windmills. One example of a blue growth opportunity. Let me take one more, 'cause I see the time flickering here already. I got that. That is around fishery. We're in fishery. Fishery is great, and it's really a first building block for aqua farming, the whole fish farming, aquaculture. Already today, farmed fish is produced more than beef, and that's really a future. Our technology, again, our fishing solutions and also our mooring solutions, will help us there. There is a big range of other opportunities there, and we are really nicely positioned to capture many opportunities there. In summary, we are proud and pleased that we have weathered these storms, have basically maintained our profitability.
We've also continued to invest in technology and also with the M&A activities, basically expanded our offering, which allowed us to basically got stuff like the Bangladesh order in. Where our core markets are about to cautiously turn positively, on the horizon, we see this great range of new opportunities. I think MacGregor, as I said earlier, is better positioned than ever to reap the benefits of these. Thank you.
Thank you, Michel. Now it's time for questions.
Yes, please.
You talked about how your flexible model has protected you in the downturn.
Mm-hmm.
When the upturn comes-
Mm-hmm.
How confident are you that you're gonna have a supply chain left?
That's a good question. The partners which we use are long-term partners. We are so intimately. It's not that we go flip through the yellow pages and just find one and change every supplier every year. The network of suppliers we have is so strong that they will be there with us. The good thing about the fact that we have external ones is that they, in the downturn, have actually gone to some other segments. They have more flexibility, but they have also a balanced portfolio of for which they work. We work so intimately with them that they will continue to be there and benefit from our, if you like, demand for products, also in the upturn. It's something we thought about, and it's a relevant question. Thank you.
Yeah. Hi. Just a question. You have this 40% group target software and services at some point in time.
Mm-hmm.
Over the cycle, what do you think is a realistic level for your business?
For service?
Yes.
Our aim, that's not. I realize what you say. If the equipment size goes down, then automatically our service element goes up. We are still aiming at that 40% also in the upside. Perhaps it's not gonna happen like that, but what we are truly trying to do is we're trying to change the focus of our organization. We're not sort of, when the upturn comes back, become an equipment company anymore. It's a mindset change where we truly wanna become a lifecycle company. In a way, the difference between, if you like, solutions like Cargo Boost and new equipment, that blurs, if you like. Ultimately, we wanna go through that target 40%, even in the upturn.
Perhaps we're not gonna reach that, but the mindset is there that we want to strive for that also when the equipment sales are picking up again.
Are there further questions? Yeah, Philip.
Yes. Hello, thank you. In terms of containers, CMA was mentioned already.
Mm-hmm.
I think MSC has also recently-
Yeah
... emphasized interest. We've seen interest in bulk already since the beginning of the year. ONG is more or less flat.
Mm.
Containers, really coming back now or?
You've read perhaps that there is a few orders being placed. Antti talked about the 22 TEUs. MSC is also talking with some Korean shipyards. We do see increased activity on container side. There's another trend which is at the other side of the spectrum, where, for example, on like intra-Asia routes and short sea, et cetera, we also see some potential growth there for the smaller capacities. It's gonna be very cautious. What I'm saying is not gonna change these two graphs you just saw. Indeed, we do see that number of inquiries are picking up and people are building more vessels. The Greek owner is very important, that they are like the early sort of like parties who come back to this market, are also a bit more active. We see many early signs.
At the same time, people have been hurt, and they sit on their money, and they are probably taking a lot of time before they place the actual order. We do see that coming back exactly as what you said.
Okay. Thank you.
Thank you.
Thank you, Michel.
Okay.
Next, our CFO, Mikko Puolakka, will summarize the some of the key messages and profitability improvement actions. Mikko has been our CFO now one and half years, and you have also very impressive international career. You have been CFO in several international companies, and you have also successfully delivered similar kind of cost savings program you are driving now.
Thank you, Hannah- Maria. Also very welcome, warmly welcome from our side. Many familiar faces and, of course, I'm aware that I'm the only obstacle between you and the coffee break, so let's get moving. I have been with the company now a bit over one year, and boy, what a exciting journey it has been already so far. You have been hearing about very concrete topics concerning the digitalization, service development, and the new lifecycle solutions what we are providing. If I compare the time when I joined the company in May 2016, many of these things were still more or less on a PowerPoint level. As a financial guy who really likes to see concrete revenues, concrete profits, I can say today that we have extremely concrete and sellable digital solutions to customers.
This is the basis for our future future profitability. We have a very strong commitment to improve our profitability. You have se lMikael presentation that what kind of remarkable improvement we have done since 2013 in profitability. We have a concrete action plan also how to bring that forward. Let me first illustrate how did we improve the profitability from 2013. We started with 4% operating profit, and today, we are having 7.5%, doubling the profitability in relative terms as well as in absolute profitability. As you can see from the chart, the biggest impact is coming from Hiab's equipment profitability.
We are talking today about 30% higher sales than in 2013. Significant improvements done in the supply chain development, moving from manufacturing to really efficient assembly operations. Also, Roland mentioned earlier today that there has been a significant overhaul of the overall Hiab's product portfolio. Today, we are talking about 70% of the models being less than three years in model age. These are the main contributors for Hiab's profitability. Service and software. Today, we are talking about EUR 300 million higher sales than in 2013. Significant improvements done in every business area.
Total contribution here, almost 2% units. Antti was mentioning that we were dearly paying for the project development exercises back in 2013, 2015. We have put in place concretely new ways of managing our projects, enabling much more solid project execution. Significant 1.6% improvement on the profitability. To mention some other elements, MacGregor's sales today 24% lower than in 2013. If we compare to 2015, the drop is even bigger as you saw from Michel's presentation. We have done significant restructuring in MacGregor, 700 persons less today compared to December 2015.
Without that, this negative impact would have been even bigger than you see here. These cross-margin or cross-profit and sales developments are not coming without any investments. You can see also on the chart that we have a 2.45% impact on cross-profit or operating profit coming from the investments we have done, for example, in R&D, including also the software development in Navis. We have also strengthened significantly our service organization, the distribution network, as well as service platforms. We have invested also common into common systems to have a better transparency to support the business. With these elements, from 4%-7% in four and a half years' time.
Let's have a look what kind of developments we are going to have also on the cost side. These are the 4 main profit improvement programs which we have currently ongoing. Of course, on top of this, we are doing continuous activities in design to cost and other product optimization initiatives which are improving then the direct cost of our business areas. Let me elaborate a bit the business area specific restructuring programs. Let's start with MacGregor. We announced in October last year a large EUR 25 million cost savings program. This is now completed. We have implemented all the needed personnel reductions, also the facility reductions have been implemented.
The EUR 25 million savings you will see visible by the end of this year in our cost run rate. So far, 12 million already in the books. If we are looking, Kalmar's production transfer from Sweden to Poland, this is also progressing according to the plans. In July, we were producing 60% of the forklifts already in Poland. The rest of the production will be moved to Poland in the second half of this year. From next years onwards, we are getting EUR 13 million profitability improvements from this activity. Next, I will cover the new or the newest EUR 50 million profitability improvement program, which we announced in May this year. What is the background for this program?
We have done significant investments in common systems and platforms, common processes, to be exact, EUR 100 million over the last five years. This allows us better transparency to the business. It allows also the central provision of certain support function services. Another element is that we have a significant, EUR 600 million, indirect cost base. With indirect cost, I mean, costs like logistics, facilities, external services, or for example, production supplies. There we have done already in past certain improvements, but there is a lot of potential in this 600 million to improve further. These EUR 50 million savings are coming from two elements. 30 million are coming from indirect procurement savings and EUR 20 million from support function efficiencies. How are we going to implement these savings?
We have set up in, at the end of last year, a central indirect procurement organization. The task of this organization is to drive the company-wide savings on this EUR 600 million cost base. Secondly, we are establishing currently, as we speak, a shared service center here in Sofia, in Bulgaria. Very similar what I have been implementing also in my previous work. Thirdly, we are going to make significant automation efforts in certain support function processes. We are talking about finance, we are talking about HR. Couple of years ago, this was more a hype discussion, today it's reality. As you can see on the right-hand side, we are actually proceeding better or faster than originally anticipated.
This year, we are anticipating to get EUR 5 million savings from the indirect procurement savings. By 2019, that should be already EUR 30 million on our annual cost run rate. On top of that, 20 million would be coming then from 2020 onwards at the latest from the support function efficiencies. Let's have a look a bit deeper on the strategies or the indirect procurement savings. These are coming from two sources, strategic sourcing and then the efficiency. Strategic sourcing savings are bringing most of the savings now in the first year. If we think the strategic sourcing activities, you need to understand that we have 16,000 suppliers currently. Our ambition there is to consolidate this supplier base significantly. This 16,000 is only related to indirect purchases.
Larger economies of scale, negotiating better terms and conditions with higher volumes from individual suppliers. Thinking the efficiency improvements. On this area, we are talking about 300,000 invoices annually. Automating and improving the tools which we are using currently for handling the indirect procurement activities will bring major savings here. We are also going to provide internal indirect procurement services to our organization instead of that every person needs to do the purchasing activities by themselves. It saves time, but frees up also more time for the business support activities. Let's have a look as a next one, the EUR 20 million program, the support function efficiency program. In the center of this savings program, we have our Sofia, Cargotec Business Services operations. I'm actually personally very excited about this program.
I see that it offers lot of possibilities for Cargotec to improve our internal efficiencies on top of course, the significant cost savings which we are doing in this program. The scope is fairly large. We are talking about finance, HR, indirect procurement, and information management activities. Finance is clearly the largest here. We are planning to go live with the services already this year in quarter four. The first pilot country is Finland. You may recall that we had already the labor or personnel negotiations which ended up in June. Very, very significant improvement for us internally and of course helping the organization to provide more support for the business organization instead of working on transactional process handling. Let's next have a look how we have been developing our cash flow.
If we look, the working capital efficiency, we have been improving that from 8% to 4% now currently during the last 12 months. How we have done that? I mentioned already earlier, the assembly operations streamlining, for example, in Stargard. This has been a significant contributor, not only in Stargard, but also in Kalmar to improve the working capital efficiency. As an example, in Stargard we have been improving our on-time deliveries, the ratio from 60% to almost 100% over the last two years. This has allowed us to eliminate unnecessary buffer stocks throughout the whole supply chain. Significant contribution there. We have also reduced the number of country-specific warehouses and consolidated the warehouses more into larger entities.
Roland mentioned, establishment of a new distribution center in the U.S. We have also in Europe, one central warehouse where we can provide very fast deliveries all over the place. We are also doing significant payment terms harmonization, cutting from almost 150 different payment terms to smaller number, and at the same time also negotiating better terms with the suppliers. These are some examples how we have been improving the working capital efficiency, but also how we are going to improve the working capital efficiency going forward. Due to these actions, we have done significant improvement in our cash flow now during the last years, yielding more than EUR 300 million cash. How have been we've been using this cash?
In the past, the biggest uses have been in R&D. Over the last four and a half years, over EUR 400 million spent on R&D. You can see also the results, significant new number of products and solutions. We anticipate that R&D spending should be remaining on current level, so 2.7% of sales. We are not necessarily planning to increase the ratio to sales. In the future, like you heard already from the previous presentations, more focus will be put on implementing the M&A initiatives, what we have. That will be one of the main uses for our cash going forward. We have set also the target to improve the absolute dividend per share. That will be one of the other objectives for the cash usages.
What are our M&A targets? Let's first have a look on the criteria. Acquisition targets which are very much supporting our long-term financial targets, improving EBIT, return on capital employed, 15%, recurring business, and then growing the service businesses. We have the 50% gearing ceiling temporarily that can be exceeded, but in the long term, we should be still staying below the 50%. What kind of M&A targets then we are targeting? In Kalmar, service opportunities, for example, acquiring customer service operations. As mentioned already earlier, also expanding the software offering. In Hiab, we are targeting both technologies or products and then also the market penetration. Very characteristics to Hiab's business is that some of the customers can be very loyal for local brands.
By acquiring local brands, Hiab can get a significant hold on additional customer footprint. In MacGregor, we are very much looking then technologies, intelligent technologies and solutions to improve the vessels' operational performance. Like Michel also indicated earlier, that will be one of the key drivers for the growth. Next, let's move to our long-term financial targets. Mikael already highlighted these, but as a summary, the latest financial targets, 10% EBIT. If we think this new target of 10% EBIT for total Cargotec, this is actually a significant improvement already from the previous target of the 10% for each BA. The previous target would have yielded on Cargotec's level, 8.5, maximum 9% Cargotec operating profit.
We want to grow the service and software business by EUR 500 million from the current level, so EUR 1.5 billion in the next three-five years. We want to increase the absolute dividend within the range of 30%-50% of EPS, and we want to reach 15% ROCE in the next three-five years from the current approximately 10% level. How are we going to do this? Let's elaborate first growth opportunities. That was already extensively discussed in the BA presentations. I will summarize the key topics here. As you saw, the megatrends are providing a good demand for all our three business areas' growth.
Need for more intelligent solutions in all business areas, strict emission requirements, growing concern for environment, as well as the new alliances will change significantly the future environment. In Kalmar, you heard that we have a $17 billion waste in the container value chain. That will offer significant opportunities not only for Kalmar's automation projects, but also for the software development. In the equipment, Kalmar's equipment business, we have a EUR 1 billion market potential at the moment. That is expected to double in the next 10 years. Excellent growth opportunities against these assumptions. In Hiab, we are going to see growth in construction, in waste and recycling, in logistics, as well as in governmental business.
In MacGregor, the solutions and the growth opportunities are very much after the improving of vessels' operational efficiency. Markets are now on the bottom level. We see that they will return, not necessarily on those levels where we saw those in the past, but there will be growth. It's a question of time. Next, let me elaborate how are we going to meet our 10% operating profit target. Here you can see the elements and to highlight some of those. We have been discussing a lot today about service and software. You can see also the importance of service and software in this chart. 1%-2% units improvement to the current level by growing services through digital solutions, by expanding the service offering from spare parts to maintenance contracts and other advanced service solutions.
Software growth would come through Navis as well as from true automation projects. In Kalmar's and Hiab's equipment, we see growth and that will contribute to the EBIT margin improvement as well as the project business, both in Kalmar as well as in MacGregor. I mentioned earlier that we are maintaining the R&D investments on the current level, that is not expected to have a positive or negative impact on our operating profit. With the EUR 90 million current cost efficiency programs which we have up and running and which are basically in our full own hands, not dependent on market developments, those are expected to bring 1-2% units on our operating profit. These are the ingredients to reach 10%, even beyond the 10%.
The ranges here depend a bit on M&A, current market situation, and to a certain extent from business mix. Improving operating profit is also the key driver for our return on capital employed to 15%. As you can see from this chart, the return on capital employed has improved from 5% to the current 10.2%. The improvement has been mainly coming from the operating profit, which has been doubled during this period. We have been able to maintain the capital employed on 2013 level thanks to the significant networking capital improvements. The operating profit improvement is also the key driver for our absolute dividend improvement.
You can see from here from 0.5, sorry, from 0.42% to 0.95%, in the last four years. Our target is to improve the absolute dividend within the range of 30%-50%. On top of that, we are intending to pay the dividend twice per year. That is our proposal to the annual general meeting next year. To conclude, we have a very solid track record. We have delivered what we have promised. Our ambition is also to stay on that path. We have concrete elements how to improve the profitability. We have good growth opportunities both organically and also through acquisitions. We have a very solid financing structure to support the growth.
Together with the growth and also with the cost efficiency programs, we are going to reach the 10% operating profit. Thank you.
Thank you, Mikko. Now I would kindly ask Mikael, Michel, Roland, and Antti to join us on the stage. There is a possibility to ask questions to all of them. I'm sure... Yeah. Tommy first.
Tommy Raudaskoski, so this is for Mikko and the slide on the profitability improvements. You mentioned that the range depends a little bit on the market and M&A and mix. If I'm calculating at the bottom end, you would reach 10%, and then, if everything goes like like in dream, it would be 13.5%. How do you end up with the 10% overall? What kind of, sort of, business-wide, business level targets would you require to see? I have a follow-up then.
Yes, I would say that this 10% is a kind of a very solid basis where we have already the ingredients in place. If we think, for example, the good track what we have now in the development of the services and software. If we think the cost efficiency activities, these are more or less in our hands. We have a great potential in the services. You saw earlier the very low attachment rate currently for the service contract, as an example. This 10% is a kind of a lower range, and then the upper range would be more supported, for example, with by the M&A activities where.
Which kind of you need to have twthree parties to dance. From that point of view, it's not kind of even If we would like to acquire some company, you still need the other party's consent for that.
Also, much depends on the market. So it's not in your hands in a way, looking at the equipment in Kalmar Hiab and also, the large projects and MacGregor. What kind of assumptions do you have for equipment growth in 3-5 years?
If we think if we start from Kalmar, taking the equipment market, which is currently roughly 1 billion in size. Like mentioned, we expect that to double in the next 10 years. Growing gradually, that's the basis for the equipment business growth in Kalmar. Thinking MacGregor, we clearly see at the moment that there is the market bottom what we see. Gradually growing it in that area. That will not necessarily improve our top line yet in 2018. Thinking 3- 5 years horizon, the market should be completely different than what we currently see. In Hiab, it's very much continuing. In Europe, we see a solid base.
We have not seen weakening in the U.S. market. Then the big potential for us is the APAC market, where we have plenty of room to improve from the current 11%, what it represents in Hiab.
Thank you. This is a Kalmar question. I think you said that you're not expecting larger orders in Q3 or Q4. What should it mean if we compare last year? I just don't remember how your second half was year ago. Did you have many good projects then?
If you think about what I exactly said, not in the quarter three. It will be quarter four or the next year when we expect to get bigger projects, potentially. Like I said, it's difficult to make the predictions when the customers make the decisions. Compared to the one year ago, I would say that situation was fairly same as today, from that point of view. We had also limited amount of those projects that realized.
If you don't get bigger orders in Q4, do you think you can grow Kalmar sales next year?
I would say that the biggest challenge what we have is really to get the big orders, to get also the sales for the next year. Like you, Antje, very well understand, so that's extremely important for us now to get the big orders as soon as possible.
This is Tom Skogman from Carnegie. Looking back at Cargotec's history from the listing was very much about, moving production, you know, building up capacity in Poland, and that starts to be done. To my understanding, you still have quite a few smaller factories left focusing on, you know, single products. Do you have any plans to further sharpen the production set up beyond what you have kind of presented to us here today? It's only Lidl basically that is, you know, going to move production, to Poland at the moment, as far as I understand.
If I maybe take that. I think overall, if I look at the profit improvements we have done so far, and Mikko showed the numbers. The other way of thinking that one is that most of the improvements we've been doing so far have been around the back end of our business. It's the production, the products, et cetera. Of course, that's a good place to start because you can do faster decisions, and the impacts are quite well visible. We haven't gone through that route entirely yet. You're absolutely right that in terms of our production set up, there are still opportunities. From impact point of view, they are not necessarily at the same scale what we have seen, but we haven't probably done entirely yet, and we have to look at that one as well.
The real opportunity, I think, in the next 2-3 years is then the front end of the business, and that's to do with the front line efficiency. It's to do with the back office efficiency that relates into the front line efficiency. I mean, if, for example, talking to Mikko here about the kind of the ratio of finance people per sort of revenue, et cetera, we are in a completely different range at the moment compared to best of breed. Back office efficiencies, front line efficiencies, and of course, with the front line is the services performance and sales performance as well. I think we will see the still potential improvements and obviously the product margin improvements flow through when the products are introduced. Still some room in the production footprint.
Also good to remember that even though we have actually done the production changes now, those factories are not yet in the shape that those factories there in Scandinavia, where we had a sort of years and years of experience. I look at, for example, in Poland, and it have to admit that most of the people that come to our production line actually have no production background. They come from construction industry or agriculture. When I look at that one, for example, take a Hiab crane or Kalmar mobile equipment. The labor cost rates have come down, considerably down, but the labor rate or labor hours spent per machine is actually up because we don't have the processes, the experience of the people. There is still, I think, efficiency to be squeezed within the current production footprint as well.
Plenty of opportunities left.
Yeah. I remember the last time you hiked your margin target to 10%, early 2007. I think it coincided with you reaching a peak margin that month as well at, of around 8.5% or so.
Yeah.
Let's hope that the history doesn't repeat itself. Looking at your 10% margin target, first of all, you say software and services should grow to 1.5 billion in 3-5 years. That should equate to around 40% of group turnover, implying a 3.7 billion turnover, 10% margin 375 million. If I put your historic multiple on that, it looks what it would imply for a fair share value today, that's around EUR 50-55, roughly where we are today. What's wrong in the equation? Are there more upside to this, or is this what your work will lead to?
Well, first of all, I would say that I like hitting my targets. That's why I think the 10%, I mean, if you don't have a plan to get there, why would you actually give a targets like that one? I think Antti already there pointed out the discrepancies. Let's put it that way, that we feel comfortable enough with that pro, 10% target, even in different scenarios we are running through. I think there is a real opportunity to drive that one. Obviously, also I would say that the other message there is that we are playing a long-term game here. As Mikko was showing, we have given 2.5% of our profit in investing for the future.
I mean, if you would put that back in and we've not have done that investment, we will already be in better. Those, that two and a half points we plan to convert to something much more valuable down the road as well.
Good answer.
Are there further questions? If not, thank you, gentlemen. Our CEO, Mika Vehvilaine , will wrap up the key messages.
First of all, let me take the opportunity right away to thank you for coming in. Thank you for those who have been listening and watching the webcast as well. Thank you for your valuable time as well. Hopefully, this has been useful for you. Again, reminder that we will have the breakout sessions after this one where you can deep dive into the different topics as well, and read leads or meet sort of wider our management as well. If I sort of look at that one and compare where we were here in London in November 2015, we have made good progress. We have made good progress financially. We have made good progress in terms of creating shareholder value as well.
We have to be happy with that one, but I think the even more important, I think, is that we are now in much better shape. We have the saying internally that in order to shape the industry, you have to be in shape yourself. I think that's something that is not necessarily visible to you, but we did a large number of management changes in the first two years of operation. You look at the people now in front of you today and some of the others you will meet there, one thing is common, that we all start to have now a few years under our belt as well, and that of course increases the experience, that increases our capability to execute because we understand the business now much better.
What you have seen and heard hopefully today is that we have not only sort of driven the better business out of what we had there and started to fulfill some of that potential that the company has already had for a long time. I think what's really important to understand that what we have now done in the last couple of years is to lay the foundations for the transformation we talk about, driving this to company to being the leader in intelligent cargo handling. The market opportunity definitely is there. The logistics industry is at the tail end of the digitalization.
You look at the pressure the industry is under in terms of the environmental regulation, different laws, safety, customer pressure, and efficiency, and you look where we are today in terms of leveraging software, data, automation, robotization, and the technology trends that will be supporting that one. You have all this technology that is happening, artificial intelligence, autonomous vehicles that we can leverage in our industry. You look at the customer and their requirements and where they are today, the opportunity to sort of get this together is absolutely there. You look at the position we are in today in terms of the market position and the strength we have and the capabilities we have built in there, I strongly believe that we haven't seen anything yet in terms of the potential we can do down the road as well. With that one more time, thank you.
Enjoy the evening.
Thank you, Mika. We will end up the live webcast here. It's time to thank you who have been following the event via webcast. Thank you for your time and interest in Cargotec. Here in Haberdasher's Hall, we will continue with the breakout sessions. There will be 3 breakout sessions, one for Digitalisation-