Hello, everybody, and welcome to this news conference regarding Cargotec's Q1 2017 results. My name is Hanna-Maria Heikkinen. I'm in charge of investor relations. In Q1 we saw strong start for 2017, especially in Hiab, where we saw record high orders received and profitability. The order development in Kalmar was also satisfactory. Weak market situation in MacGregor continued. We succeeded to keep the segment profitable. Our goal is to grow the share of services and softwares to 40% by 2020. In Q1 the share of services and software was already 32%. Q1 is actually the first quarter when we are reporting the software sales separately. Today, our CEO, Mika Vehviläinen, will start with the group development. Our CFO, Mikko Puolakka , will continue with the business area development financials and outlook.
At the end of the presentation, there will be great opportunity to ask questions. Here's Mika.
Thank you, Hanna-Maria, and from my behalf as well, good morning, and thank you for participating the Cargotec Q1 2017 conference call. Let me start with the developments overall. I'm obviously satisfied for the fact that the operating margin improved further during the Q1. The Kalmar's profitability was slightly improved, and I think that was satisfactory result considering that the sales were flat and we kept on investing. That was visible in our cost, especially towards our software and automation business. Improving gross margins in Kalmar lead to the further improving profitability in the business. Obviously very satisfied with the progress we had in Hiab in terms of record operating profit, record orders, and record revenues for the Q1 2017.
MacGregor market situation continued to be difficult. That was of course visible in the further declining sales. We have to be satisfied with the fact that we are able to keep the business area profitable despite the declining revenues due to the difficult market conditions. Our orders received, net sales grew in Hiab. They were pretty much flat in Kalmar and further decline in MacGregor orders and revenues. In MacGregor, sequentially, the orders are actually up first time for quite a while. Hanna-Maria already said, we announced that we report separately our software as well as the services revenues. All together about EUR 250 million in Q1, representing 32% of our revenues.
Talking about market environment for a while, in terms of the container flows, ports, shipping, the market has somewhat improved from the year on. Although the growth figures are still not very high, depending on the source, you see container growth numbers somewhere between 2.6% to about 5% growth. Clear improvement from year ago but still below the sort of average growth rates of the previous years. Overall, though, the market environment seems to be improving, and especially in our sort of core Kalmar business in mobile equipment related services, et cetera, demand continues to be strong. Another important step will happen during the Q1 was that the, in terms of this consolidation of the shipping lines, all three major alliances now actually have received their competitive or the approvals are now in place.
These three alliances represent about 77% of the global container traffic. This should then further improve the stability among the ports and hopefully lead to the owners also in larger investments. The decision-making so far during the Q1 has been still relatively slow but actually the Kalmar business is really supported by the good continuing strong demand in the base business. In Hiab's case, the market environment remains to be weak. The U.S. market is still strong, and we clearly have seen an improved market conditions throughout the year up there. Effectively, of course, the growth rates still vary from market to market, but pretty much all the markets are actually showing signs of improvement at the moment, and that's obviously also visible in the Hiab numbers. The marine cargo handling equipment market is still weak.
However, I would say that we start to be in a stage that we can call the bottom of the market. Looking at through the different indicators, the shipbuilding, even though still clearly below the historical average levels, is up year-on-year. As I already said, our orders are still down year-on-year, but this is actually first time after eight quarters of sequential drop that we actually started to see the orders and getting up in MacGregor. Another important indicator for us that even though our services revenues in MacGregor still declined somewhat further, the inquiries around services are clearly up, and also our orders in MacGregor services are now also up year-on-year as well.
There are several signs that point out for the recovery of the market, but we expect this recovery to be slow in the coming quarters as well. In terms of orders received, very good performance by Hiab, really supported by strong demand both in Europe as well as in USA. Kalmar is pretty much flat, really the orders primarily coming from the mobile equipment. We did not record any larger project or automation orders during the Q1 in the business. As said, MacGregor still down year-on-year but sequentially up first time for quite a while. Our order book is actually up sequentially from the end of last year with that one, and overall remains in a good level both in Kalmar and Hiab. Operating profit improved slightly despite the fact that sales declined.
Sales decline, obviously, coming from MacGregor, where Kalmar was flat and Hiab up. The sales and improving profitability really is coming primarily through the gross profit expansion. The gross profit is improving due to the investments we have done in the R&D. It is improving our product performance, more competitive, better cost points on the products, better project execution, as well as improving mix in our businesses as well. As Hanna-Maria already said, we have now decided to start to report our progress against the 40% target in software and services. Last year, our service and software combined revenues was slightly over EUR 1 billion. In Q1, the number was EUR 250 million and representing 32% of the sales. When I look at the services performance across the business areas, some satisfied with the higher performance.
Services up by 7%. Kalmar Services business was up by only 3%, which is not a satisfactory number. The sort of base Kalmar Services business representing maintenance and spare parts was actually performing more strongly, but we had some weakness in the project-based services business with the crane upgrades in Q1. In the trigger, services revenues were still down due to weak market, we clearly started to see it throughout the quarter, inquiries coming up and also our services orders were up year-on-year at the end of the quarter. Software business growth was obviously satisfactory by 28%.
Obviously, the numbers are still small and some of the larger orders can lead to the lumpy business in the performance, but we are clearly on the right track and we see good demand and a stronger position for our software business, both in terms of the Navis representing terminal operating systems, port automation and other software development as well. Obviously, our target is still 40%, and we have long time to go, but the direction is at the moment correct. Before going to business areas, we actually announced in connection of our annual general meeting the eco-efficient product portfolio for Cargotec. Why did we do that one?
It's very clear that the eco-efficiency and environmental issues are getting increasingly important in transportation and logistics, driven by end user demand, driven by the different government and regulation, both locally as well as globally. With our investments further into R&D in terms of electric products, hybrids, software and automation, we can clearly see it is an opportunity to further leverage our investments and build further competitive advantage for Cargotec. When we look at our offering in eco-efficient products, we can characterize it in four categories. The one, clearly the biggest potential overall in industry is the overall system efficiencies. Here, our increasing software offering gives better visibility for our customers into logistics and transportation to optimize the cargo flows and remove unnecessary moves and transportation as well. This is a big improvement opportunity and business opportunity for us as well.
We are providing further products in environmental industries such as wind farming, waste management, recycling, et cetera, across our three business areas. Our investments in the further product development, especially around hybrid technology and electric technology, are important in increasing emission efficiency, and this is clearly becoming a clear sort of competitive advantage for us. Last but not least, the resource efficiency in terms of the rebuilding, refurbishing and upgrade of our equipment also improves eco-efficiency of the industry. Overall, the eco-efficient product category represents about 3% of our revenues, and we expect that to increase in the coming years. With that one, I'd like to hand over to our CFO, Mikko Puolakka, who will cover the business areas and the financial side of it. Thank you.
Thank you, Mika, and also good morning from my side. Let me start first with Kalmar, where the quarter one profitability improved nicely. The orders really increased in Americas and in APAC and amounted EUR 448 million for the total of Kalmar. We saw growth in mobile equipment from as well as nice growth in service orders. Kalmar sales were EUR 364 million for quarter one. That is -1% compared to last year's level. We saw growth in service sales 3%, and also software sales are growing like indicated Mika also by Mika earlier.
Operating profit improved from last year's levels by 9%, and also the relative profitability improved from 7% - 7.7%. The improvement is coming from favorable sales mix, new products or renewed products, and then more efficient project management. Moving to Hiab, where the Q1 was a record quarter in basically in all financial indicators. Orders were EUR 288 million. That is an increase of 5%. Basically orders were growing in all three regions. We see orders growth in all our main product categories; tail lifts, loader cranes, services, and high demand booms. Order book has increased slightly and sales were EUR 270 million, up by 10% compared to last year. Sales grew basically in all our product categories. Very nice development in there.
Operating profit was almost EUR 40 million, that is a 22% increase year-on-year. The relative profitability improved from 13.2% last year to 14.6% this year. The improvement is coming very much from new product launches and then increased volumes. Moving to MacGregor, where as indicated earlier, the quarter one was still weak from market point of view. Orders were EUR 121 million. That is a 30% decline year-on-year. Orders decreased in EMEA and in APAC, but improved from low levels in Americas. Looking sequentially, our orders in MacGregor grew by 21% from quarter four in 2014, and also as Mika indicated, we saw nice growth in services orders.
MacGregor sales were EUR 160 million in the first quarter, down by 26%. We have good sales growth in roro, but the other divisions declined. Profitability declined from EUR 9 million last year to EUR 2 million this quarter. And relative profitability was 1.55%. We were able to maintain the top numbers, thanks to active cost efficiency improvements. Our cost savings programs are proceeding according to the plans. We have two major restructuring programs ongoing. In MacGregor, a EUR 25 million program started last year. So far we have made EUR 5 million cost savings from that program in quarter one, and anticipate that the full run rate should be visible in the second half of this year.
We are also progressing according to the plans in Kalmar's production transfer from Sweden to Poland. From this program we are anticipating EUR 13 million savings in 2018. We also continue with product redesign activities as well as project management development during this year. We have also like communicating earlier this year, started an investigation to improve our capabilities to increase the operational efficiency internally. This investigation is proceeding also according to our expectations. A few highlights about our financials. Mika went already through the orders, order book, and sales. There we had negative growth or decline in quarter one. This is basically coming from MacGregor's weak order situation. Hiab was flat.
Sorry, Kalmar was flat and Hiab was very nicely growing. Operating profit, EUR 59 million for the quarter, and very much coming from Hiab's good performance. Also Hiab's share of the total business grew from 29% - 34%. Earnings per share, EUR 4.57, and excluding the restructuring charges, EUR 4.6. Our Q1 cash flow was impacted by the negative working capital development. There, we had basically negative development coming from the growth of certain businesses which are tying more working capital. Also one has to remember that this working capital is a snapshot of one day, and there are certain shifts between quarters as you can see between Q4 and Q1 this year.
The advances received declined by EUR 20 million from end of last year. This is very much coming from the low project orders in Kalmar as well as in MacGregor. Looking forward, we see that there are no fundamental changes in our cash generation capabilities, so this is a shift between quarters. Looking our financing structure. The net debt increased by EUR 130 million and was EUR 631 million at the end of March. We paid dividends of EUR 57 million in March. We had taxes and financial items EUR 64 million in quarter one. The average interest rate has decreased from 2.8% - 1.8%.
This is very much thanks to the EUR 250 million new bonds issued in the first quarter. Our loan portfolio is very diversified, roughly EUR 700 million from bonds, EUR 460 million, sorry, EUR 425 million from bank loans. We have unused credit facilities, EUR 300 million, plus on top of that, EUR 290 million of cash. The liquidity profile is also very balanced, EUR 28 million loan repayments during this year. Also in the coming years, we don't have any bigger repayments. Looking to long-term trends, operating profit margin and ROCE have been improving.
Operating profit margin from last year's 7.1% to now 7.5% in Q1. Return on Capital Employed from last year's 8.8% - 9.5%. 2017 outlook, we reiterate the guidance given in the beginning of the year. The operating profit excluding restructuring costs for 2017 is expected to improve from 2016. With those words, I would hand over back to Hanna-Maria.
Thank you, Mika. We will continue with the questions, and we will start with the questions from Ruoholahti.
Hi, good day. It's Sergio from Investo. Two questions if I may. First, you talked about positive mix impact in Q1, especially in Kalmar. Looking at your current order book, should we expect the mix or how does the mix look like? Should we expect the positive momentum to continue there?
In Kalmar, in terms of gross margin, there are no significant changes between the Q1 and the order book at the moment. I think the bigger potential automation project orders would not be, I think, expected until the earliest second half of this year. That would then relatively change the mix of the order book. You know, one would also obviously expect a higher order book by that time as well.
Thank you. That actually would have been my second question, regarding the shipping alliances. Do you see them getting their act together pretty fast so that they would be ready to launch optimization projects?
Yeah, I think the first important step is now taking at the early part of April, the last two remaining alliances now got their competitive authority approval. The consolidation is now in place. Obviously, how fast will that then give the visibility for the ports in terms of the traffic and how fast can then the ports be able to make potential investment decision based on those traffic, forecasted traffic volumes is still slightly open. The industry historically has never been particularly fast on that one, so we don't expect any faster reactions on that. Hopefully we will start to see an improving order intake or order intake generally on the automation projects through the second half of this year already.
Okay. Thank you.
Are there further questions from Ruoholahti?
Olli Herrala, Kauppalehti. Yeah, I'm asking about, you mentioned those cargo flows and container traffic. What's the current situation? You mentioned something about picking up slightly, right?
Yeah, if you look at the numbers, we had a very slow growth at the early part of last year, one point some percentage points. Depending, there are two different sources. Drewry, which we use, is effectively saying that the growth during the Q1 was about 2.8%. There are other sources that indicate even a higher than 5% growth at the moment. The Drewry is the one we use. We see increasing activity overall in the container traffic and ports at the moment.
Are there further questions from Ruoholahti? If not, then we will continue with the international questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, ladies and gentlemen, please press star one to ask a question. We'll pause just for a moment to allow everyone to signal. Our first question comes from Manu Rimpelä from Nordea. Please go ahead.
Thank you, and good morning. The first question would be on the bigger project execution that you mentioned was one of the reasons for the improvement in margins. Could you just help me understand that in what division that is and what is that in practice?
In practice, this really relates to the two of the three business areas. Obviously in Hiab we have not really a project type of business. In Kalmar's case, that's really largely large port deployments, automation projects or other heavy projects where we had issues in the past years. We clearly have invested in the past three years in our project execution capabilities, bringing in new competence and talent, bringing new tools and systems, and this is expanding margins in our projects. In MacGregor also more focus has been paid in the terms of margin recovery and managing the projects, especially in the offshore side and both of those improvements in Kalmar as well as in MacGregor in the project margin are visible in the improving gross margins.
Okay, thank you. In terms of the internal cost savings measures that you mentioned, can you just help us to understand that are you going to quantify them or How far are you in that process, and what should we expect from those savings?
We will, as mentioned, we are proceeding in those analyses. We will come up with communication when we are ready with those. Not yet fully completed, so requires some time still.
Okay. In terms of the here and the Kalmar, if we take here orders first. Where, where do you see here in this cycle if you look at the kind of the bigger picture? Are we in terms of the construction market, so it looks like the U.S. is only starting to recover? This has been some time already. Where do you kind of see still a structural growth going ahead or growth ahead if the market will recover? Are we starting to near peak levels?
I mean, generally, if you look at the construction cycles, as we know, they tend to be quite long. In U.S., clearly we have seen a strong market. When I look at the construction output forecast, actually one expects 2018 to be even stronger than 2017. At this stage, we still see a strong demand continuing in U.S. as well. In Europe, I would say that we are starting to see the early parts of the cycle kicking in and one would expect, if things go as they look at the moment, and obviously there are a number of uncertainties around the politics and et cetera in Europe.
The way things look like at the moment, we would be at the beginning of fairly, relatively long sort of positive construction cycle in Europe as well.
Okay. Would you be able to give similar comments for Kalmar order intake in terms of just the mobile equipment business in Europe that's been quite strong for some time now already?
It's been strong for some time, and we expect that to remain strong, actually across all three geographies. U.S. still doing pretty well, Europe as well, and also Asia Pacific, including China, is sort of remaining at a fairly strong level at the moment.
Okay. That's all from me. Thank you.
Thank you.
Thank you. Our next question, ladies and gentlemen, comes from Antti Suttelin of Danske Bank. Please go ahead.
Hi. This is Antti. Automation, you've said for some time that there is strong interest and this and that. We don't really see this taking off. Why is that? What is the problem keeping your clients not automating?
I think one of the bigger factors has been the uncertainty related to the future traffic volumes in ports, and that was really related to the strong consolidation of the shipping lines. As I already said, we now have actually that consolidation in place from the regulatory point of view. That uncertainty should start to be lifted. Obviously, the work in these alliances is still somewhat sort of a work in progress in terms of the new services and traffic patterns, that should then start to give the clarity for the industry. I think overall the industry is generally quite conservative. Decision-making has been in the past and continues to be slow as well. There is just a sort of, I think a timing element of that one.
We hopefully start to see the clarity and hopefully start to see first decisions to be started to make during the second half of that this year.
Yeah. If you think about your own, discussion activity with your clients, do you see that there is an improving trend?
There is an improving trend. There is a number of active discussions that have been actually going on for a while. It's sometimes frustratingly slow, though, the decision-making in this industry, but I think we're getting there.
All right. Good luck. Thank you.
Thank you.
Our next question, ladies and gentlemen, comes from Paul Checketts of Kepler. Please go ahead.
Yeah. Yes, good morning, gentlemen. Firstly, on here, how high do you think here the margins can improve from here? Obviously, you're at record levels as it is, but given the number of new product launches, which I understand are at higher growth margins, given the U.S. housing starts are still well below their long-term trend, given the recovery in Europe, given your focus on services and spare parts, I mean, could they potentially go to 16% or 17%, or is that too optimistic? That's my first question. The second question is could you give some granularity on the growth in software? Where are you seeing this exactly? You mentioned Navis, port automation, but just a bit more granularity on how we should look at the potential growth in software.
Turning on to automation. Is automation really ports or is there much demand coming or potential demand coming from inland logistics? I have more questions, but I'll just keep those for three for now. Thank you.
Okay, thank you. Starting with Hiab, I think the Q1 margins is a fairly good sort of a benchmark what one would expect to see throughout the year. There are opportunities still to further drive efficiencies in number of areas that you actually described yourself very well. Against that, we clearly also are pushing more into the growth in Hiab. One of the development areas being developing markets where our market positions today is relatively weak and those investments and potential drive for seeking further growth in those markets are likely to be depressing for the margins. Those two things probably work against each other at this stage.
I would think that right now, what you're seeing in margin level is a fairly good assumption and as in margin for Hiab for this year overall.
Is all your R&D expense?
Yes, it is. Sorry, the second question was.
Oh, software growth.
Software, yeah. In software, obviously the automation is one part of software. The market is still, as we have already discussed, it has not accelerated yet. The further automation investment decisions would start to drive software automation, software business in there, but that's still sort of waiting for further decisions from the auto operators. Where we see a good strong development is actually in the Navis software part. Navis is clear market leader today in the terminal operating systems, so ERP for the ports. When it comes to automated ports, Navis is the only commercial solution effectively available today for the ports. The further automation we see, more we will see that business to be driven.
The big single upside we have in the Navis in the non-automated ports is that roughly half of the market is still today in-house systems, the other half is commercial systems, and out of those commercial systems, Navis has a lion's share. We see further and further movement in the port operators coming to a realization that continuing to develop your own in-house systems is just adding complexity. It's not really core for your business success. We actually see, I think we will see strong movements on people actually walking away from in-house ERP systems as we have seen in other industries, and that's going to be one source of the growth for the software as well.
Any inland logistics?
Inland logistics. Yeah, it's intermodal is clearly an interesting area. We also see interestingly few projects where people are actually looking at the possibilities to do more of the port and logistics operations further out in inland. The idea there effectively is that that sort of the land is very expensive in port. You have a certain labor union issues as well. People are looking at the projects where you would have minimalized port facilities. Then you would actually sort of feed in the container traffic from the sort of inland port facilities directly inland by straight rail connections and do the most of the container operations and potentially some logistics operations actually further into inland with the clearly lower land and labor costs as well.
There are few of those kind of projects cooking up, which look quite interesting.
Thank you. I'll have more questions, but I'll let others go first. Thank you.
Thank you. Our next question comes from Johan Eliason of Kepler Cheuvreux. Please go ahead.
Hello. We're keeping you busy today. A few questions from my side as well. Just on here, good margins there. Could you give some detail on the currency impact in the quarter and how you see that impacting the following quarters? Focus on the software again. You said it was up 28% year over year. Could you sort of strip out what was the initial acquisition and what was sort of the underlying organic growth for the rest of the business? Thirdly, I noticed your associated income is down almost half. Yesterday, we had a profit warning from Rainbow Heavy Industries where they guide for their 2017 earnings to be almost cut in half, blaming lifting orders, and I guess lifting orders related to your joint venture there.
Could you give an outlook for what you see in terms of associated income, for the full year for you? Thank you.
I think Mik will take the first and the last, and then I'll talk about software in between.
Okay.
If we start from the currency impact, there was roughly 1% unit impact in Hiab's Hiab sales and orders. No major impact actually. Overall, for the profitability it's really marginal. We are talking about some couple of million EUR. Of course, it's always a kind of a to a certain extent a plus minus gain because we are also hedging the FX positions. I would say that currencies did not significantly impact the Hiab's Hiab results. In terms of the software, we don't separate the Interschalt. The growth primarily came, as I said, from the Navis sort of terminal operating system side.
The Navis software sales is an important part of that one. The customers there are primarily shipping lines. As we have seen the sort of the financial situation in the shipping area and the number of new ships built, that has clearly sort of slowed down. We haven't seen a significant growth in the Navis software business. The growth is primarily coming from the core software investments at the moment. Back to you, I think.
Yeah. Concerning the results of the joint ventures and associated companies, yes, the results went down from EUR 2.7- EUR 1.2 this quarter. This is more or less a kind of volume question concerning the Rainbow Heavy Industries.
What comes to the Rainbow Heavy Industries, I mean, our roughly 8% ownership in that company, last year we had a significant loss on the company, roughly EUR 3 million. This quarter basically has been plus minus zero. Talking about that one, and those who actually see, still see the slide on that one important step we had in further development of the joint venture with Rainbow Heavy Industries was the investment into the new ship or key on that one. As you can see from the picture, if it's still visible for you, it's a fairly significant investment. A big part of that one you see actually the factory buildings and manufacturing in the background.
This enables us now to load heavier cranes directly into ship and avoid the erection and build up on the customer site in higher cost countries, both for some cranes there are RTGs actually going to a Chinese customer in the picture.
Okay. Thank you very much.
Thank you. As a reminder, ladies and gentlemen, please press star one to ask a question. Our next question comes from Philip Saliba of HSBC. Please go ahead.
Yes, hello. Thank you for taking my question. I was wondering how you see the pickup in general PMIs in the emerging markets, whether it affect you positively, for instance, in Hiab, have you seen some improvement there? Also then relating to Hiab, how many more product releases will we see throughout this year? Will they be able to contribute to a further gross margin improvement?
In the PMI indexes, and I'm sure many of you follow them probably more closely than I do, I think in general the development is positive, in Asia as well as some developing countries. From Hiab's point of view, the impact of that one is not that significant. Our key development area clearly is to increase our presence in many of the developing countries in Hiab space. Our markets are very much in the sort of more developed Western European and North American markets today, and the opportunity for us is to grow organically as well as inorganically in those countries, but that's very much a work in progress, and I don't expect that to have any significant impact for our numbers 2017.
In terms of the product renewal, we are further accelerating our R&D overall. I can't remember the exact number of products now that we will be launching, but that will be higher than the last year numbers. That was already fairly significant. So 54, I think, was last year we could say, and this year we actually some of more new product launches. Obviously, those 54 introduced last year are the ones that will be primarily driving the margin now, and the new product introductions will always take some time to get into the market. But there are opportunities in margin expansions there, and you weight that against the sort of our desire at the same time to sort of grow the business and revenues as well.
And then, relating to Kalmar, you talk about the healthy development at your mobile equipment business. If we strip that two parts, how much has the mobile equipment business grown? And how much is coming from port automation deals that are delivered? And also looking in general into 2017, how much port automation will be delivered? I mean, you had in Q4 2016 order intake and then also in 2015 we had a good order intake. So anything from 2015 still stretching into 2017 or?
If I start with that last one, I mean, I still remember there are orders, I think, in 2016 that are still stretching in 2017, but those are not significant. Those are probably the tail ends of the implementation projects we have. We probably talk about few million EUR here and there. Generally, the implementation of these ones is sort of 12 - 24 months in there. Overall, if I look at then the sort of development separately from revenue point of view between the mobile equipment and sort of base business and then the larger automation approach, I don't think there is a significant difference, and I'm looking at the mid-year same time in Q1, so both were fairly flat compared to the same time previous year.
Yes. The order intake, I think, was slightly more favorable to us than mobile equipment. As I said, we didn't land any major orders in the prohibitive automation side in the Q1.
That Q4 order that we've seen last year, the port automation order, that will still be delivered in this year or rather next year?
Most of that will be delivered next year. Some of that come already towards the end of this year.
Okay. Thank you very much.
Thank you.
Once again, ladies and gentlemen, please press star one to ask a question. The next question comes from a follow-up from Paul Checketts of Kepler. Please go ahead.
Yes, thanks again for taking my question. The automation, port automation bit. Am I right in my thinking that the existing ports? Sorry, let me start again. Actually, maybe one question. Of the global number of ports, I believe there are 500 ports globally, of which 250 have enough container volume throughput to make it sensible to look at automation. Can you give us a figure of just how many of the global ports have any form of automation, either fully automated or semi-automated? That's the first question. In terms of where you expect the projects to come from for automation, will that be the existing ports that have already been awarded contracts from the global container alliances?
Will it be more from the ports that missed out, and therefore they have now, let's say, five years to get their house in order or four years and bid for the next round of coming towards? I mean, we were down at DP World, and I gather the container contract that they want from the alliance it was a five year contract. Is that normal within the industry? That's the sort of the, on the automation side. Secondly, on the restructuring costs, how much of this is an ongoing measures and how, what sort of burdens you expect those to be on a sort of, on an ongoing basis? Thirdly, is all R&D expense in all the divisions? Then lastly, this is a question from CEO.
I mean, you've, you know, you've done a great job so far. I'm just looking at your history at Nokia, Siemens, and then at Finnair and at Cargotec. I mean, you seem to enjoy sort of turning around ailing companies. Are you content with your package at Cargotec, or do you tend to sort of go on to a new challenge?
Thank you for the question. Hopefully, the board is listening as well. Let me start with the port side. Yeah, those numbers are that you said is absolutely the right ballpark. Of course, within the port itself, you will have a number of different port operators. Some of them might have quite a large part. Overall, when you look at the potential customer base that has enough volume, that the business case for the port automation is that the number we would be looking is 400-500. It's no different. I think your number, 250, is probably the number of ports, but within those ports, you will have multiple, some cases, multiple operators. That's the potential customer base.
If I look at that one, about 20 of them have some sort of automation. Very, very few of them have a sort of full automation, where the actual automation starts from them taking the container from the key side and taking it on the sort of truck flatbed or railway. For example, in DP World, London, the truck loading and the stacking yard is automated, but the horizontal transportation that takes the container from the key into the stacking yard is still today manual, although the equipment we have delivered has an automation capabilities. The only one I think that is sort of end-to-end automated at this point is the Los Angeles port, operated by TraPac, that has our automation system in there.
Even within those 20 or so, there are still parts that have not yet been fully automated on that one. I see no reason why not all of those 400-500 ports would be eventually automated. The business case is so highly compelling. We see today that the automated ports that we now use for a while, where the technology is advancing, our maturity is advancing, are able to get to the same performance as manual ports. I think when the technology matures, I see no reason why the ports could not operate more efficiently from the moves per hour point of view.
However, already today, when you have the same performance from efficiency point of view and roughly half of your labor costs are out, it's 40% -5 0% of your operating costs, that effectively means that your cost per move is down by 20% - 30%. That's such a significant change and saving that it's, I think for the ports, what we will see, and that's very visible now in Australia, we are now automating our fifth port, is that you get to this kind of pivoting point where the competitive pressures will drive port operators into the automation. We are at the very early stages of that one. Hopefully that sort of answers that question.
In terms of R&D expenses, all the new R&D projects, and that's a very significant part of our R&D expense. There are some tail ends, I think few million EUR maybe of the older R&D projects that have been capitalized in the past, and we will run both in the end. They don't really have a very sort of significant bearing to that one. I just strongly believe that the only way to do that one within the IFRS limit is to expense the R&D once you go on.
There were questions about the restructuring of Multilift, if you want to...
Yeah, I can take that one. In quarter one, we had EUR 3 million restructuring charges. Those were related to mainly to Kalmar and MacGregor ongoing programs, those programs which have been started in 2016 or earlier. We anticipate around EUR 5 million from these programs during this year, so not that much anymore going forward. Most of the actions, for example, in the MacGregor restructuring have been taken place. Some reductions will happen till later this year. Then, the Kalmar production transfer continues during this year, but no kind of charges anymore like we took in 2016. Of course, if we decide, for example, for further restructurings, those. That's a separate program, not anymore big numbers from the existing ongoing programs.
Back to the question about myself. First of all, I was in Nokia for 17- years. I went through growth phase as well as doing the restructuring and integration with Siemens as well. Siemens was very clearly a turnaround case. It was always a kind of project for me personally. I knew that we have a work to be done, and I'm, you know, still sort of satisfied and what we were able to achieve there and obviously the company is today in much better shape. When I look at the project then I think we are only sort of concluding the first phase of the transformation that is ahead of us.
The first phase of any transformation, of course, is that you have to create the space for yourself to be able to invest. That's very visible. We've been able to ramp up our R&D costs by more than 40% in last couple of years, we are still investing further. When I look at the industry that we are serving, logistics, it's surprisingly unsophisticated in many ways in terms of leveraging data, software, digitalization overall. I think there are fantastic opportunities for us to really address those demands. You know, in many ways, I look at the port operators, they remind me of the telco operators in the late eighties and very much in-house systems, sort of, fairly conservative approach.
If you look at what happened there, I think the digitalization data and software will transform the logistics industries, and I think we have a great opportunity to actually address that. I very much hope to be part of that opportunity going forward as well.
Excellent. Thank you.
After, no further questions.
Thank you. It seems to me that there are no further questions. Actually, there is one more from Roland.
Yes, it's Roland here again to finish this up. You've got highly outsourced manufacturing operations, we know that. How much pricing pressures through your supply chain have you seen when we think about steel and rubber prices, for instance? How easy has it been to hand them over to your own prices? What's the outlook regarding that?
Yeah, that's a good question, actually. When I look at our cost of goods sold, about 30% of our cost base is actually affected by the steel increase in steel and raw material prices. As our setup is such that we don't effectively buy directly raw materials because we are an assembly operation mostly. This will of course come indirectly us through our component suppliers and others. Clearly, there are price pressures, and obviously our sourcing is doing their best on that one. At the same time, with the increased R&D resources, we've been very focused and successful in driving the design to cost initiatives down. We still expect our design to cost have a positive impact in terms of our margins. Today, we will see further reduction in our product costs.
The pace is slower this year than it was in the last two years because the raw material costs are somewhat fighting on that one. Overall, we still expect lower product costs, but the sort of the deceleration or the reduction is somewhat then compensated by the increases coming through the components for us.
Thank you. Are there further questions? Seems to be not. I would like to remind you of our upcoming investor relations events. First of all, on the 1st of June, we will host Software Day here in Helsinki. That's a great possibility to learn more about our software business and the possibilities there. We will host a site visit in Shanghai together with some other Finnish companies, Valmet, Stora Enso, and Kemira on the 15th of June. We will host Capital Markets Day in London on September 12th, and then Q2 report will be published on July 20. Thank you for your active participation on this news conference.