Thank you for standing by. Welcome to the Cargotec Q1 2014 interim report conference call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question-and-answer session at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today on Tuesday the 29th of April 2014. I would now like to hand the conference over to your moderator today, Paula Liimatta. Please go ahead.
Afternoon, ladies and gentlemen, welcome to Cargotec's conference call on January-March 2014 report. My name is Paula Liimatta, and I'm Head of Investor Relations at Cargotec. Today, we have a small live audience here in Helsinki, as well as people on the phone lines. We will start with the presentation by our President and CEO, Mika Vehviläinen, and CFO, Eeva Sipilä. After that, we will begin a Q&A session. Mika, please.
Thank you, Paula. In addition to Eeva and myself, we have also sort of, trying this year to bring some of the BA Presidents as a part of the conference call. I'm happy to have Eric Nielsen, and the head of the MacGregor here with us today, so he can take any specific questions related to MacGregor as well. Let me get started. First of all, some of the highlights for the Q1. Orders grew roughly 9% year-on-over-year. If you look at the so-called organic growth, i.e. excluding the Hatlapa and the Aker Pusnes, or as we call it now, MLS internally, MLS acquisitions into the MacGregor, the orders grew roughly 1 percentage point. Sales grew 11%. Again, if you exclude the acquisitions, the sales growth was roughly 3 percentage points.
We have now also included here the impact of currency. So far during the last year, we didn't actually discuss a lot of currencies for the primary reason that the total impact on the corporate level was actually quite minor. With the fairly strong changes in the Swedish crown, Norwegian crown, US dollar, and the Japan yen to name the sort of main culprit, so to say, the impact was fairly significant one and hence we have called out what the order intake and revenues would have been with the fixed currency. 15% and 16% growth respectively. Operating profit, excluding restructuring, was EUR 24.6 million or 3.3% of the sales. Quite an improvement compared to last year an operating profit EUR 23.8 million.
As you can see from this one, and I think Eeva come back to that one, the amount of restructuring in the Q1 was, is very minor. Cash flow was also an improvement for EUR 32.5 million, but I still would not characterize that as satisfactory, and clearly the rest of the year needs to improve in terms of the cash flow production for the company. Looking at the yearly numbers, and again, we will go those through more in detail with by BA. By BA, maybe the most interesting number on the slide four would be the increase in net debt, primarily driven by the closing of the acquisition of the Aker Pusnes solutions during the Q1.
We are still aiming to bring down the net debt during the year, and we expect of operating cash flow to bring down the overall gearing into the neighborhood of 50 percentage points also during the year. With that one, we can go through the more detailed performance development. I hand over to Eeva.
Thank you, Mika, and good afternoon on my behalf as well. Starting with the picture on the left-hand side, so you see another quarter of a nice book-to-bill development clearly over one. If one wants to exclude the impact of the acquisitions in the order number EUR 863 million, we had some EUR 64 million of orders coming from the two acquired businesses in MacGregor, Hatlapa, and MLS. Their impact on the sales number of EUR 751 million was EUR 49 million. The respective numbers in the fourth quarter were EUR 24 million for orders and EUR 18 million for sales, and that was then at that time only Hatlapa. The Aker part we only closed end of January.
Looking on the right-hand side, you see a clear improvement year-over-year on profitability. Obviously, the seasonality in our business means that we still have the quarter-over-quarter comparison is quite tough, but we are progressing on the profitability improvement. Looking at the business areas more in detail, I start with MacGregor. Here, clearly, a good quarter of order intake continued. It's still somewhat of a challenging market in terms that obviously shipping is still a market where demand and supply are not yet in balance. However, clearly there is activity that is helping us to book orders in the marine cargo handling market. Offshore, clearly more positive.
However, also merchant ship has been active, especially on the bulk bulker side. We had sales growth in the quarter, but that was pretty much all coming from the acquisition. Here, really, sort of organic number year-over-year was almost flat. This obviously explains or part of the sort of profitability issue. The other being that as we have been flagging, the mix in the beginning of this year has been weaker in the sense that there's more offshore than merchant, and the profitability difference in those businesses still for us today is visible in the numbers.
We're obviously working hard, following now the acquisitions and the integrations to further improve offshore, both the organic as well as the non-organic side. As said, this is something that we have been trying to inform you about. Obviously the profitability is further impacted by various one-off items. We obviously have the PPA, which continues with us for the full of the year, but then also some one-off valuation items as well as pure advisory type of cost related to the closing up the acquisitions. Maybe the sort of apples to apples operating profit one should look at is actually 5.9% versus the 7.4% a year ago, rather than the 3.6%.
As said, the PPA is something that EUR 2.1 million for the quarter and because after being the sort of only two months included, it will be slightly higher for the coming quarters. On a full year level, we talk about some EUR 10 million, that's good to have in your numbers. Going further into Kalmar, a more stable market, America's a good market, Europe similarly. Some hesitancy in Asia and also visible then in the order intake. The year-over-year comparison is tough. We had one big project in the first quarter of 2013, that maybe sort of makes the drop more significant than reality is.
Sales-wise, a pretty sort of solid quarter, and that also obviously then helped on showing some of the achievements on the profitability improvement actions. Unfortunately, a big part of those achievements were eaten up by still continued problems in specifically one project. We still had EUR 9 million extra costs overruns booked in the first quarter. Nevertheless, the sort of profitability improvement, thanks to the improvement actions in all the other Kalmar businesses is visible, and that's obviously something which we are now based on the first quarter numbers also comfortable that we are on track with the EUR 40 million improvement program.
As you may remember, we've we talked about a run rate improvement of EUR 40 million by the end of this year, meaning in practice EUR 20 million improvement over the 2013 numbers. On that, we are on track. We had hoped for some tailwind in the project side, namely because last year numbers include EUR 34 million of cost overruns from projects. Obviously the first quarter is clearly a disappointing start, we still have the late delivery discussions to be held with some of our customers. It looks like there will be sort of limited tailwind from this side. The profitability improvement in Kalmar very much comes from the sort of actions taken on other areas.
Going into Hiab, a flat market, however, obviously a very visible improvement in profitability. We had a good sort of delivery quarter as such. Actually because of maybe a bit lower the delivery capability in first quarter last year, we were recording 8% growth, but it's maybe more sort of with a flat market that we would sort of indicate at this point. Clearly some highlights in some product areas like truck mounted forklifts and tail lifts supported by good U.S. market.
A sizable improvement in profitability, really 6.4% is a good achievement in the margin, very much coming from a continued improvement in the gross margin we have been sort of talking about already in the fourth quarter. We've made good progress on the service business profitability as well as the sales and service network rationalization and profitability improvement actions, which we have been discussing with you in the previous webcast. Clearly starting to pay fruit and we're happy with the progress.
Here perhaps where sort of the improvement in the first quarter is such that we are actually confident that we will not only achieve the indicated EUR 40 million run rate by the year end, but we think we are a bit ahead of schedule, so we expect to hit the EUR 40 million run rate during the autumn, which would then help to make the operating profit improvement versus 2013 somewhat more than the EUR 20 million indicated earlier. Going back to group level numbers, again, cash flow, as our CEO pointed out, a slight improvement. Typically still, first quarter is a buildup of working capital.
This was not different, but this is very much a focus area for us because of the increased debt after the acquisitions. Hence we will continue to work hard on the working capital items as the year progresses to further improve the cash flow. Looking at sales by geographical area or by business area, no big changes. Here you see that on the Cargotec level, again, despite the inclusion of the acquisitions, there is not a significant change in the balance of the portfolio. We're quite happy with the sort of balance of the businesses when it comes to business areas or geographical scope. Some further details on the integration of the acquisitions ongoing.
Obviously now work fully ongoing, and the MacGregor team very busy with various areas. We confirm our earlier statements that the majority of the synergies are expected to come from a new sales to the top-supply and development actions as well as then efficiency improvement in the supply chain area. Those, and the more we work, the sort of, it becomes more clear that those are the areas we will sort of certainly focus on. The maybe good for you to understand is that due to the long lead time in the MacGregor business, and obviously the acquired businesses are no different in that sense, the impact of these synergies will become more visible in 2015 numbers.
We are expecting obviously some positive numbers in 2014, they're not really material ones on the Cargotec Group level. However, on the top-line side, the first indications are there that we are booking orders which we would have not achieved alone. I think the 1 + 1 + 1 is more than 3. Certainly there we have a very clear target for the sort of order intake development, which in turn will materialize into top line in 2015. We talk about more than EUR 50 million worth of orders that would have not been reachable without the combination of the 3 businesses. With that, we're ready to look at the overall guidance. I give the room back to Mika.
Thank you, Eeva. Just a few things. The guidance is unchanged. What we have said in the past was that we expect our sales to or revenue to grow from 2013. That certainly still holds true. The operating profit excluding restructuring costs for 2014 to also are expected to improve 2013 level. Also, I'm very happy that when I came in, we started the sort of the transition and changes in the management team and with the hiring of the Roland Sundén, who will actually start on Thursday officially as the new president of Hiab. We have brought the transitioning to end. The new executive board or the management team is now ready.
Obviously, Eeva, continuing as a CFO, we have hired Mike Laine, who was the CEO for Moventas, sort of from private equity and wind turbine , and started very recently as the head of the strategy and M&A activities for Cargotec. Mikko Pelkonen, who joined us from Nokia or Nokia Siemens, as it was known at that time. Eric, who is here with us today, with the background in Joy Global, Terex and Volvo Construction Equipment. Olli, who was formerly the president of MacGregor before taking over Kalmar a little bit more than a year ago. Now Roland Sundén with the background in the private equity world, and before that, president of for Case Holland and Volvo Construction Equipment on that one.
I'm very happy to bring the transition to end and a very strong team to take Cargotec forward. With that one also wanted to reiterate that the strategy or the marketing battles and key focus areas for us are unchanged from the last year, clearly turning Hiab's potential into the profitability. As you saw from the Q1 numbers, we are off to an encouraging start and tracking according to our program targets. Building MacGregor growth platform with the successful integration of acquisition. Very happy to bring those acquisition to closure now during the Q1. Eric then taking ownership of starting to drive the growth agenda. We already see encouraging signs in terms of sort of further orders coming from the cross-selling opportunities in the organization. Ensuring Kalmar's competitiveness and profitability in mobile equipment.
As you saw from the numbers, if you exclude the project cost overruns, which are very unfortunate, we see overall and sort of underlying improvement happening also in Kalmar business. Profitable growth, future growth in services at Kalmar and MacGregor. Clearly, I would say that there is a potential to develop and run and drive better growth, and especially profitability both in Kalmar and MacGregor services. I would say that there we are just starting to sort of patch the development, so a lot of work ahead of us in this area. Kalmar, a sustainable leader in container handling automation. Number of these very large projects that we've been executing are now actually coming a sort of operational commercial use. London Gateway, a new large harbor for the or port for London is now in operational use.
We expect Los Angeles Port TraPac to come into the operational use very soon. The Hamburg Port has already been operating for a while. During the Q1, the Brisbane port also started the commercial operation. Many of these are actually coming to a fruition as we talk. With that one, I think we are done for the presentation part and quite happy to take any questions- and- answers.
Thank you, Mika and Eeva. As said, Mika, Eeva and Eric are now ready to answer your questions. We start with the questions here in Helsinki and then move forward to those from conference call participants.
Elina Niiranen from Evli Bank. A couple of questions on MacGregor first. Could you talk a bit about what you're seeing in terms of demand now in merchant, the merchant segment and in offshore, and your expectation for this year? Then as well, if you could elaborate a bit more on the kind of cross-selling opportunities that you're seeing because of this larger scope.
This is for Eric.
Sure. Yeah, first off, in regards to the overall demand in the marketplace, what we're seeing is, actually two different stories, but, similar. On the merchant side, clearly it's a uncertain or unstable environment right now from the viewpoint we don't know how far up it will go. We do believe that it has hit bottom, and that there are more tailwinds than headwinds in terms of the overall market dynamics. We believe that we're properly positioned with our product offering now to be able to take advantage of continued, but gradual upturns in the merchant side. Offshore it's a little bit more promising. It has stabilized, but also has stabilized at a very high level in terms of order rate.
We have a very nice order book in our offshore legacy business. Now we're continuing to expand with the acquisition specifically of the MLS business. This actually leads right into your second part of your question in terms of the cross-selling opportunities. With both acquisitions, we now have the largest portfolio of products for both the merchant and offshore space. We're going through and looking at how we can best position our total offering now in both sectors, merchant and offshore. What this means in practice is that we are leveraging both the product offering but also the customer base coming from the Hatlapa organization as well as the MLS organization. As Eeva pointed out, we've already recognized EUR 50 million of new orders that would not have come otherwise.
I emphasize this is both from the product, combination, but also the combination of separate customer bases.
Thank you. A second question on Kalmar profitability and the comment on the cost overrun so far, and that perhaps this year that wouldn't be such a tailwind, kind of the EUR 34 million last year and this year. Can you give on potential further cost overruns, do you have an idea of where those are going to land at for this year?
The, it's very clear that the number for the Q1 was quite disappointing coming specifically from our very large STS project. There has been issues especially around the site work and implementation. We have said in the past that we expect that number to be totally below the EUR 34 million we recorded last year. We still expect that to be the case. Of course, we will still have some of the late penalties as a potential risk that is still under discussion with the customers. Overall, I would say it's a bit early to quantify the totality of that one. We would not expect that to exceed the EUR 34 million at least considerably.
Again, I don't think it will necessarily be probably as much below as we were expecting at one stage. It's very clear the tail end of some of these projects has proven to be quite problematic for us. In that sense, that has been a disappointment. The sort of the positive side of all of this is, of course, that we only have about EUR 35 million as a backlog anymore on these projects to go.
Thank you.
Pareto. I have a couple of questions. First of all, in MacGregor, could you actually elaborate a little bit on this impact stemming from the mix? What would be the kind of size of it in terms of margins?
You want to go ahead first?
Yeah. Just generally speaking, the legacy merchant business that we have has produced higher operating margins than our legacy offshore business. We expect the legacy merchant business to remain at the margin level we're at, recognizing though that there is improvement potential through some of the actions we're taking around the cross-selling and implementing some operational excellence activities. There is upside to the merchant, but I'm not able to quantify that right now. It's actually on the offshore though, where we see the larger upside potential starting with our legacy business. Part of the rationale of bringing in the both acquired businesses was to strengthen our base in offshore. Now we have a very credible offering across a much wider portfolio and are recognized as a significant player in the offshore space.
This is giving us some greater pricing power than we previously had, and it's also allowing us to go into customer order situations with a larger portfolio and get a larger share of a given vessel contract, which is allowing us to participate in some of the higher profit portions of the vessel build-out. I would specifically add too that the MLS acquisition is bringing in a higher margin than our legacy business. That will favorably impact our mix scenario as we go forward. In summary, it's a situation where we can expect merchant to remain stable with a slight improvement potential.
On the offshore side, a material development, favorable development in our legacy offshore, coupled with the already good performance coming from MLS will allow a better balance and more favorable operating margin position in total for MacGregor.
In terms of what to expect this year, I think the sort of safe assumption would be that we obviously expect to improve from the Q1, but we don't think we will be able to reach the operating profit level of the 2013 MacGregor during 2014.
Okay, thank you for that one. Another question concerning Hiab. The question there a little bit related to this gross margin. What was the main reasons for the better gross margins? Was it stemming from the new kind of a improved design in your products? Was it more related to, let's say, the cost restructuring in and product shift from different factories to Poland?
It was actually neither of those was yet a significant contributor. The new product, especially the new loader crane, is in a ramp-up phase that did not contribute that significantly yet. We have put quite a lot of more effort in pricing discipline and managing our pricing. That clearly improved the product gross margin. Some of the Design to Cost efforts in existing products improved also the product gross margin. Also a fair amount of effort was put into our services business and improving the profitability of services business. Sort of the operating cost in spare parts side, and then the spare parts margin and the pricing both contributed quite considerably.
There's a clear improvement in our services business profitability together with the improving product gross margin coming primarily from pricing and existing product Design to Cost that contributed to the gross margin. The production shift is not that visible yet. The Polish factory ramp-up started to happen on the first quarter 2013. Again, we only expect to close the Swedish production by the Q1 next year.
Okay, thank you.
Hello. Just one follow-up. How much of MacGregor sales now in Q1 is offshore?
The number is around 40%, which is a significant increase from, if you remember last year, we were talking about either 20% or 25% between the quarters. In the first quarter, really, that mix impact was more significant than we necessarily expect in the coming quarters.
It's good to remember the long cycle nature of the business in a sense that if you look at overall the big picture, this is actually the first year we are now expecting the merchant marine, the orders to exceed deliveries. We actually have been on the declining slope. If you look at the Clarksons estimates, the delivery bottom is only reached according to those estimates in 2016, there we sort of bottom out in terms of the merchant marine deliveries. If you look at our again, numbers into Q1, it's very clear that organically, we actually did not grow. I think there was a slight decline still on the merchant marine side.
Okay, thank you. Operator, I think we are ready to start with the questions, on people on the phone lines.
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from Juergen Siebrecht . Please ask your question.
Good afternoon. A question on MacGregor first. In terms of synergies, sales synergies, cost synergies, could you get a bit more precise what we can expect? I mean, you mentioned EUR 50 million of orders which you have generated through the acquisition. Well, you wouldn't have generated those without them. It's a couple of months now, what could you extrapolate, some expectation regarding the sales synergies? Secondly, on the cost effect from your program, the EUR 40 million, how much have you consumed in Q1 regarding this program? On load handling, you mentioned the U.S. market. As I understood, market has developed better than you had expected. Can you also elaborate a bit on that and how sustainable that could be?
Lastly, maybe one of your competitors has an issue with the production plant in Eastern Europe. You are also shifting to Eastern Europe. Do you see or oversee increased country risks resulting from the unrest in that area? Thank you.
Well, quite a few questions there. Let's start first with the MacGregor synergies.
Sure. Just to be clear, the EUR 50 million number we spoke of on orders, that's our full year prospect right now. It's not incurred just in the first quarter here. In terms of what to expect going on, well, we're still working through that right now. Again, it's very much driven by the fact that we have one of the most comprehensive product portfolios now, and we're going through and doing portfolio alignment and looking at the smartest ways we can integrate not only the behind-the-scenes activities in terms of the R&D and marketing management of it, also in terms of how we can bring to the market more of a systems approach, leveraging these new products.
I'm really not able to go into any more numbers than to say that it's a work in process, but the opportunity is very real.
I would add on that one that obviously we see also clear possibilities in the supply chain side, leveraging the very efficient MacGregor merchant marine supply chain that we have had placed in the lower cost countries, primarily in China, for many, many years now in the past. There are clear opportunities to leverage that supply chain across the whole portfolio now. Again, one would need to caution that, you know, any decisions we would do now regarding change in supply chain would only realize upon the deliveries of this equipment. We really are looking at the primarily cost-related synergies coming through in 2015 and 2016. As Elo was saying the beginning, that there will be some benefit for this year, but they are not on the overall group context material yet. Eeva?
With your questions two and three, how much of the EUR 40 million is visible? Well, our guidance has very much been that it is a net impact visible on the bottom line. If you sort of look at Kalmar numbers, excluding the EUR 9 million project overruns, I believe you have an EUR 8 million improvement, and in Hiab, you see an EUR 10 million improvement. So in that sense, that's kind of how much is visible or has come through. As I mentioned on the Kalmar side, we believe we are on track to deliver the EUR 20 million for the full year. Obviously we started to have some benefits in the latter part of last year, so the comps get a bit tougher.
In the Hiab side, as said, we think we are ahead of the original schedule, so we hope to be able to show more than EUR 20 million as an improvement on the 2013 numbers. We'll continue obviously to report quarterly on the progress, and that's, I guess, the best way for you to see how much has made it and visible.
Then to your question on the Hiab U.S. market. I don't think it's actually been very different from our expectations. I think we have sort of mentioned U.S. to be a well, well progressing market already throughout last year, thanks to the improvement in the economy and a kind of a lot of replacement comes back after a multi-year slump. That continues to be the case, but as such, there's no dramatic sort of change now in the first quarter. If anything, actually, the weather conditions were very severe in the U.S. and that actually had a negative impact in our types of businesses for just the obvious inability to deliver when the sort of roads are blocked type of impact.
No, because construction industry, which is the primary application for Hiab type of equipment, was not doing particularly well with the weather conditions we had in the U.S. on Q1. Your last question was about the political risks. Our major manufacturing facility and the supply chain around that one is located in Poland, which I don't regard to be a source of the political risk.
Okay. Thank you.
Your next question comes from Johan Eliasson. Please ask your question.
Hi. I was just wondering if you could provide us with an update on your China joint venture. I was mainly referring to Rainbow-Cargotec Industries. Is it sort of delivering cost benefits for, I guess, primary Kalmar? Have you been able to secure any local container port orders in China through this joint venture?
Thanks for the question, Johan. The RCI, as we know, Rainbow Cargotec Industries, started operations last year. Our first products coming from them effectively do two things in there. One is that we have moved a complete value chain regarding our large crane business into there. That's not just the production, but the R&D design engineering and product management. That's really in answer to the very tough competitive environment that one sees in a large port crane environment where ZPMC has been dominating the market. The first product coming out of that result has been our RTGs. We shipped already quite a large number of RTGs, and we have a very solid order book on that one.
We'd be very happy with the, both in terms of the quality as well as the cost position we have been targeting with that product. That's doing well. We are expanding the portfolio into the automatic straddle carriers now, their approach is going on and delivery starting in that area as well. And we also use the RCI as a source for then production for low-cost production sources. For example, we as a part of this, we talked about leveraging the supply chain of MacGregor's offshore cranes that were formerly done in higher cost locations are now actually manufactured for MacGregor in our facilities in RCI in China. Progressing according to plan. We are very satisfied with the progress happening there.
On this local sales side, has it had any impact for your positioning in the port equipment in China or that part of Asia?
Yeah. We have had our first orders in the RTG in China. Again, a little bit too early to sort of call that one way or the other. The market development is happening.
Johan, just a correction on the products. I was talking about expanding into Automatic Stacking Cranes.
Stacking cranes, sorry.
Okay. Many thanks.
Your last question comes from Tommy Wyler. Please ask your question.
Hello. It's Tommy from SEB. Just coming back on Mika's comment on the MacGregor 2014. I mean, you indicated that the margin is better in the next quarters, but did you say that profit is not reaching 2013 level?
You know, with that one, I mean operating margin. Not the absolute number.
Okay.
Okay.
Your next question comes from Jan Kajala. Please ask your question.
Hi, this is Jan. Just a couple of housekeeping questions. I mean, if you could sort of quickly give us indications for your CapEx for this year and the tax rate and restructuring charges, where are we and what can we still expect for this year?
On the CapEx side, we've no reason to change our earlier comments that we expect CapEx to be clearly down from 2013. Obviously, you don't see the trend yet in first quarter because the expansions on board in Poland have been building quite heavy in the first quarter. CapEx will then, during the coming quarters, come down. We would expect to be in the sort of range of somewhere below EUR 60 million in CapEx for fixed assets. On the tax rate, the first quarter is quite indicative. We are expecting around a 30% tax rate for the full year. Depending, of course, a bit on the mix of countries where we make profits.
In some countries we still have some tax losses to use, whereas in other countries they are already used thanks to the improvement of business. But roughly 30%. On the restructuring cost, yes, as our CEO mentioned, very small number in the first quarter, mainly because there were no new actions started and we were if anything, quite successful in sort of running the tail ends of the earlier announced programs. However, we of course, as you hopefully remember, have announced union negotiations in Hudiksvall, related to ceasing production in that location. Those negotiations are still ongoing. We have hence not booked anything yet, but we have indicated a sizable cost.
As those negotiations progress, you can expect those costs to be booked in during this year. Let's see which quarter. EUR 14 million is I believe the number we have indicated in February.
Your next question comes from Johan Eliasson. Please ask your question.
Yeah. I just came back on these acquisitions you did in MacGregor. You said Hatlapa was sort of loss-making in Q4. I was just wondering roughly what the impact of those two acquisitions was in the quarter now also including this Aker business.
Both of the acquisitions were operationally profitable, but when deducting the PPA cost in Hatlapa, it was still a small minus, but an improvement from the fourth quarter.
Okay. Great. Thanks.
Once again, if you wish to ask a question, please press star one on your telephone. The next question comes from Jan Kajala.
Yes, sorry, I was cut off in the middle. Maybe this has been discussed already. I mean, relating to pricing and you've been saying that these savings targets are net of whatever inflation and so forth you might have. If you look at the pricing component in isolation for Kalmar and Hiab, how does that come into equation? And what does it look now compared to, for example, a year ago or last, let's say 6 months ago?
Yes. What we have said is that the savings targets are sort of volume neutral. We base those estimates, our targets on effectively a flat revenue as such. In terms of the pricing components, in Kalmar, I would say those that impact has not been significant so far. We are probably a little bit further behind in terms of implementing some of the lessons learned and disciplines and systems that we have already deploying in Hiab. In Hiab it's one of the components visible in there.
I would say compared to the main components in terms of the size would be the cost, fixed and overhead costs that we cut down compared to the similar time last year. Margin, which is an equal combination of sort of Design to Cost efforts as well as tender and margin improvements coming through the pricing. The third big element is the margin improvement in services.
Services. Okay. Thank you.
There are no further questions at this time. Please continue.
Thank you, operator. We still have one question in Helsinki.
Yes. Hello, Elina from Evli. On the demand outlook in Kalmar, what do you expect to see there?
The kind of mixed bag at the moment. As we see, we have seen quite a bit of market activity in North America and Europe. Haven't seen that all realized into the orders, perhaps in the way we would have expected. We see China being fairly stable in terms of the demand growth and then APAC being quite quiet. Obviously, the currency crisis has hit many of the developing APAC countries as well. That's been more quiet. For the whole year, we have indicated a slight growth. We still believe that that's the case.
I think in a way the Q2 is quite important for us in a sense that, again, the cycle starts that, for the revenue for 2014, the Q2 is quite a critical role to secure the volumes in our equipment to sort of secure the revenue for 2014.
A follow-up on that. If Q2 falls or if it's down or weaker than you expect, would there be additional cost savings initiatives that you would take in the face of looking at lower volume 2014? Is everything kind of being done already that would be done anyway?
I would never go that far. I think we would need to then make those decisions as the situation then potentially changes. I wouldn't go and speculate at that one at this stage.
Okay. Operator, do we have any more questions from the phone lines?
No further questions on the phone lines have come through.
Okay. I would like to thank everyone for your attention today and wish you a good day. Thank you.
Thank you. Bye-bye.
That concludes our conference for today. Thank Thank you for participating. You may all disconnect now.