Thank you for standing by, and welcome to the Cargotec Corporation Q3 2013 interim report. At this time, all participants are on 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 hit star one on your telephone. I must advise you that this conference is being recorded today, Thursday, the 24th of October 2013. I would now like to turn the conference over to speaker today, Paula Liimatta. Please go ahead.
Thank you. Good afternoon, ladies and gentlemen, and welcome to Cargotec's conference call on September 2013 report. My name is Paula Liimatta, and I'm the Head of Investor Relations. Today, we have a small live audience here in Helsinki, as well as people on the phone lines. We will start with a presentation by our President and CEO, Mika Vehviläinen, and CFO, Eeva Sipilä. After that, we will begin a Q&A session. Mika, please.
Thank you, Paula, and from my behalf as well, very warmly welcome to our Q3 conference call. I'll start with the short overall view on the results, then Eeva will continue by going through the different business areas and some of the further detail regarding the Q3 results. Then I'll conclude talking a little bit about the results improvement or profit improvement initiatives we have going on and give you an update on where we are there. First of all, if I look at the highlights of the Q3, the order intake was at the comparison level, slightly up. This was primarily thanks to the Kalmar development, and now also MacGregor was up year-on-year level. Sales declined by approximately 5% year-on-year, the primary decline coming from the decline of sales of MacGregor.
The operating profit, excluding restructuring costs, was slightly below last year level and slight improvement over the Q2. The primary reason for the changes again were changes in the top line and profitability of the MacGregor business area. Operating profit overall was EUR 31.2 million compared to the respective Q3 in 2012 of EUR 38.5 million. The cash flow was improving and pointing the right direction. Eeva will talk a bit more about the cash flow as well. The overall cash flow from the operating activities in Q3 was EUR 38.2 million. Cash flow is one of the focus areas for us for the remainder of the year. We have also today announced that we will delist the listing of the MacGregor business unit. The reasons are primarily twofold.
The market conditions overall in merchant marine especially are still such that even though we see an uptake already in the order intake and an increasing activity in terms of the merchant marine order intake, the delivery is still an issue this year and will be with us for some time. We don't feel that the market conditions for the listing are optimal at this stage. The other reason is that we have announced the acquisition of Hatlapa, which we expect to close in the very near future, and the integration activities and management focus required for that one is better spent on integrating the businesses and looking at some other opportunities rather than focusing on the listing in this market environment.
If I look at overall the results on the next slide, I wanted to specifically highlight the EPS here and give you a heads-up in terms of the Q4 here. We expect the Q4 EPS to be weak. This is really driven primarily by the taxation reasons. The biggest reason for that one is that as you probably know, the corporate taxation is changing in Finland. It's going to go down from 24% to 20% for next year, and Cargotec has a number of deferred tax assets that we are then forced to write down in the Q4. This will result approximately for EUR 9 million extra tax cost for us. That will be, of course, visible in our EPS during the Q4. However, this tax cost is non-cash flow item.
The other issue is linked in the separation, the legal separation of MacGregor business unit. There will be some tax consequences of a couple of million euros potentially on that one. This will be sort of one of items also from that sense. These will be cash items primarily to just, for example, selling of the subsidiaries. Overall, if you look at the performance development, as said, the orders were slightly down, also sequentially, as well as the revenue. However, profitability slightly up sequentially as well. With that one, I'd like to hand over to Eeva, who will cover the business area performance and some of the other items a bit more in detail.
Okay. Thank you, Mika, and good afternoon to everyone on my behalf as well. Starting on slide 6, MacGregor performance. We say, continue to say that the market we're seeing the market recovering and obviously visible in our order intake growing 25% year-over-year. I do realize that quarter-over-quarter, of course there is a clear decline. You should remember then that in the second quarter we had several very big Offshore orders, and those orders are lumpy by nature. Luckily, we had a good start for the fourth quarter, just this week announcing again a big Offshore order. Our message on the market is very much the same.
Good nevertheless to remind everyone of the lead time in MacGregor, which is clearly longer than in the rest of the business. Even if order intake is picking up now, it will be, it will take more than a year before it really starts showing in sales. The sales in the third quarter for MacGregor were actually the disappointment. We had hoped to be able to deliver clearly more than EUR 200 million we were able to deliver, and that obviously led to a change in also in our guidance last week.
We now don't expect this trend of customers postponing deliveries to immediately change. We expect a similar level of performance in the fourth quarter and that is unfortunately lower than we had planned for the year. This is the main reason for the profitability, which as such, is still on a healthy level. Going into Kalmar, the small side equipment business continues healthy. Some slight improvement in the larger equipment. It's still overall a bit modest. Comparing year-over-year, the order intake, good to remember that we had two big automation orders a year ago in 2012.
Now in this quarter we did have one important order from a repeat order from one of our first automation customers. Nevertheless, the overall number of order intake was EUR 366 million. Slight decrease in sales again, year-over-year. However, quarter-over-quarter, we are on a better track and we expect to sort of have continued high growing deliveries in the fourth quarter. Profitability 4.4%. This is hit by additional cost of EUR 9 million in projects.
We are unfortunately continuing the same message we have had in the previous two quarters of the year that we continue to struggle with these old projects and their deliveries. That is having an impact on the EBIT performance of Kalmar. Excluding these, we are nevertheless seeing an improvement in the underlying business, and that of course gives us comfort when going ahead that we are taking the right measures to improve the overall performance in Kalmar. The situation with these problem projects at the end of September was such that we have roughly EUR 120 million left in our order book.
That will obviously continue to decline as we progress in sales in the fourth quarter. But some will be also left for next year. Hiab, here, no, not much to say about the market. Healthy in the US. Europe continues to be a bit dependent on which country you're talking about and overall, of course a bit uncertain as you can imagine by the overall economic profile of the region. We had, however year-over-year 6% growth in orders and 4% growth in sales.
Also here a slight improvement in the margin when you are going in the right direction when you look at this year's performance. Going into group numbers, again, cash flow, as Mika already pointed out, so a bit better. We are clearly tying capital and work in progress in the beginning of the year and some improvement now. Obviously we still have a lot, a lot in, a lot of working capital on the balance sheet, which we are focusing very much now to push ahead through deliveries and collection of receivables. Looking at our sales in services, 24% of the total, EUR 182 million for the quarter.
Unfortunately, very little growth visible in this graph, especially on the MacGregor side of the market, as customers are saving money and that has an impact on their numbers. The market situation in Kalmar and Hiab is slightly better. Looking at just these graphs just to kind of overall wrap up how the Cargotec portfolio looks like. Share of Kalmar, it continues to increase as we've seen in the earlier two quarters of the year and a slight decline in the Asia Pacific sales as the share of MacGregor decreases and there obviously the Asia Pacific exposure has been the highest. No, not nothing dramatic to report about this slide as such.
With that, I think I leave it back to our President and CEO.
Thank you, Eeva. On slide 12, we have our outlook, and this is what we already said last week. Remains unchanged. We expect the sales and operating profit excluding the restructuring costs for 2013 to fall short of 2012 numbers. In terms of then the quarterly uptake, we, the Q4 has generally been the strongest quarter of our year, and expect that trend to remain there also this year, but not significantly different from the performance from the Q3. Moving onwards and a small update. In July, in the connection of the Q2 announcements, we gave you a little bit more details in terms of what are the practical measures and projects and programs we are driving to improve the profitability across the Cargotec organization.
I thought I'll share some of the actions taken and where we are in terms of the project. On slide 14, this was the overall picture where we are now very much focused on reconfirming and executing the key improvement initiatives that we have communicated for you at this stage. If I start with the Kalmar, slide 15, this is the program picture we gave you in connection of the Q2. If we now look where we are and what we have achieved so far on that one, quite a few things have actually moved ahead. First of all, in terms of the organizational and efficiency and refocused R&D, we targeted roughly about EUR 20 million cost savings in Kalmar business, and we can say that we are actually reaching those targets within the year.
In project delivery capability development, we have now all the projects are actually within the SAP. This gives us a better visibility and control environment. Unfortunately, also the other side of the coin on that one is that once we've been able to do that and improve the visibility, we have also detected the cost overruns better and again, disappointing EUR 9 million overrun on those projects in the Q3. The ramp-up of the Poland multi-assembly unit started and the Kalmar production started there already in the beginning of the year. Today, more than 50% of our European production is already coming out of the Polish plant, obviously that number is expected to increase towards the end of the year and into the next year.
In terms of the development of service business, we launched the Kalmar Care service products in June this year and are getting good traction in many of the product areas here. Especially, I wanted to highlight a new product area for us, which is getting a strong demand. That's refurbishment business and rebuilding of the existing crane business. This is a service business that I like. It has specific IPs and knowledge that is required in there, and we have a strong demand on that business at the moment. One example of that one was recently announced, APMT crane refurbishment project in Spain, where we are refurbishing existing ZPMC cranes. The ramp-up of our joint venture in China is proceeding well. We have now moved all our RTG production into the joint venture in China, in RCI.
Overall, the demand and the sort of the delivery volumes for the RTG have developed very favorably this year, and we are very happy in terms of the quality and the cost of the delivery of the new joint venture manufacturing there. In terms of improvements in design to cost and new product generation, we announced our new reachstacker in June, project named Gloria, and the production of that one started during the Q3. In Hiab side, slide 16, again, similar improvement actions identified in connection of our July Q2 forecast. In terms where we are, the route to market immediate improvements, we have finalized the plans and the execution is started. We have, for example, implemented a centralized dealer management system in there.
You also saw today a restructuring announcement in Hiab that is partly related to our improvements and structural changes in terms of our distribution and sales structure in Europe. In terms of the footprint, the factory in Stargard, Poland has also started manufacturing of the new cranes in September, and production there is ramping up at the moment. The efficiency improvements that we have discussed, obviously today's restructuring announcement is addressing that one. I wanted to highlight the fact that the EUR 20 million savings that we announced in connection of this restructuring is mainly included into the EUR 40 million run rate improvement we have indicated earlier for 2014, as did that then cause some confusion as well.
In terms of the improvement in design to cost and development of new products, a very important product launch for us took place in September, where we announced four new loader crane models. Obviously the product offers much better customer functionality, speed, and handling capabilities. More importantly from our case, also has a lower cost points than the existing product generation. That model has been launched and expected to come to the production towards the end of the year. MacGregor situation, we have achieved the cost plans. This is slide 17. We announced earlier today we have appointed a new head for the MacGregor business.
Eric Nielsen started in August in his new position and is of course driving the organizational changes and efficiencies in there. We are very happy with our organic growth in Offshore overall. I again wanted to highlight that I know that the Q3 ordering intake might feel disappointing if you compare that to your Q2. I'd like to emphasize what Eeva already said. We are up 25% year-on-year on that quarter, but more importantly on the year to date in MacGregor order situation, we are 44% up in our orders compared to the last year. We also said that we are going to grow through the acquisitions, and we have announced the Hatlapa acquisition expected to close in the very near future.
This is an excellent, important first step for us in growing through inorganic ways in Offshore and on merchant marine business as well. We also announced that due to the market conditions and the required integration of our inorganic growth, we will delay the listing of the MacGregor further into the future. With that one, I think we are at the end of the presentation and open up for Q&A. Thank you.
Okay, ladies and gentlemen, we are now ready for taking your questions. We don't have any questions from the live audience here in Helsinki. We can start with questions from the conference call participants. Operator, please.
Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. The first question comes from Juergen Siebrecht from HSBC. Please go ahead.
Yes, good afternoon. A question on the marine order intake, the EUR 150 million in Q3. Can you split that up into merchant and Offshore? Can you then remind us of the merchant order intake in Q2? Have we seen here an increase? Also with regard to Q4, you had a EUR 40 million or EUR 37 million booking here. Is it fair to assume that we come back to a level above EUR 200 million for the order intake in marine? Thirdly, I thought there would be a market update or market outlook for marine included in the presentation, as you had in the past. Could you elaborate about that maybe?
Lastly, also on marine, do you have, I mean, the order book is quite low. I mean, order intake is improving. How would you see then sales and especially also the margin development for the next year? Thank you.
Thank you for the question. Why don't we do so that I'll start by giving the overall market update. Eeva will address the specific questions you had in your, there was quite a few details in there. If I sort of start with the big picture, I start with Offshore. We still see a strong continuing demand in Offshore technology. The market is expected to grow above 10% annually for that one. That's of course driven by the Offshore exploration demand and also Offshore moving into the deeper waters that requires further lifting capabilities and technology for us. That business remains healthy, we have enjoyed the sort of the order intake. This was especially strong in Q2.
Again, and we have just announced this week a very large new order in Offshore as well. The merchant marine, I think it's important to take into account when we talk about market development, the long tail nature of the business. There is a clearly an improved order uptake in the business at the moment. If I remember the numbers correctly, last year, about 1,000 merchant marine ships were ordered. If I, my memory serves me right, about 1,600 ships have been ordered this year, so clearly more.
If actually, if you look at the order uptake in terms of the weight tonnages, the actually the numbers or curves are now following roughly the years 2005 to 2006, which some people say were the last normal years in the marine before we had an overheated market in 2008 and then the collapse of the market in following years. The long tail of the nature comes from the fact that even though we have seen, I guess, the market to turn around in terms of the order intake, the deliveries, overall are still declining. This is just the nature of the long lead times on that one, and that delivery recovery is likely to take for some time before that starts to be visible.
Yes, I think the market has bottomed out in terms of the order intake. It has not necessarily yet fully bottomed out in terms of the deliveries going into the next year as well. That's the sort of dynamics in that market. Eeva, would you like to address the other questions on that?
You asked about the share of Offshore in order intake in the third quarter. It was about one fifth of the EUR 157 million. Clearly obviously lower than in the second quarter where, which you should have probably assumed already based on just the number of announcements made. Your question on does this week's EUR 37 million order help improve the order intake in going into the fourth quarter? Yes, it certainly does. EUR 37 million with reference to EUR 157 million is a big number. I think the best way for you is really to, we will announce all big orders and you should be prepared for some lumpiness.
We try to kind of give you guidance on how we see the market. Then obviously you have the facts of the quarterly order intake on top of that to help you draw the right conclusions of the. I think the direction where we're going is pretty clear.
Okay. For the next year?
We, at this point, I don't remember us guiding on the next year at, in the third, in conjunction with the third quarter. We will not do it now, but we'll obviously come back to the issue. We have a good occasion in the capital markets day or then, when we come out with the full year results.
Looking on your order backlog, which obviously will also be sales effective next year in the marine. Is there anything changing in terms of mix, positive, negative? Volume-wise, obviously there's downside risk to sales, but how, for example, is mix doing based on the order backlog you have?
Yes. The this the order book being down is obviously linked to why we are sort of underlying the fact that the recovery in deliveries will take some time, some time to come through. The there is more Offshore in that mix than you have seen in the past, well, pretty much for a long time. Now obviously if we include, are able to close Hatlapa in the very near future, that will also then have an impact on those, on those, on those numbers. At this point, I would sort of I would sort of be a bit cautious on giving more exact guidance into 2014.
Thank you.
The plan is that we will discuss the market dynamics a bit more in detail, what it means for us, because there are, from the ship orders into the actual equipment orders for MacGregor and the shipbuilding into the actual delivery of our equipment, there are certain lead times and dynamics that are related. We hope to give you, share you more light on that one in the connection of the capital market days.
Thank you.
Your next question comes from Elina Ruitta from Evli Bank. Please go ahead.
Yes. Hello, can you hear me?
Yes.
Okay, good. A question on the listing of marine or the postponement of that. Could you say how much listing related costs there are now in 2013? How much will be booked in the fourth quarter?
Yes. We now have a roughly EUR 3 million in the year to date numbers. We, despite the decision, there are some actions we will sort of complete. You can expect a bit more cost coming into in the fourth quarter as well. Four million is maybe a good number for the full year.
Okay, good. Thank you. Then just a follow-up question still on the marine orders. Maybe I remember this wrongly, but was it so that in one of the previous quarters when there was big volatility in the marine order intake, you commented that a level of around EUR 180 million, that that was kind of something that maybe was underlying. Is that correct? Is that something you still feel comfortable with, that level?
Yeah. Trying to remember. I think, yes, we were indicating, I think, was it under Heidi or was it a range of between EUR 150 million-EUR 200 million per quarter would be kind of a sort of a run rate with sort of assuming no, sort of no, you know, huge orders or many, many big orders. I think this EUR 157 million is well in that range and is in that sense still relevant guidance. Hopefully, we can increase that range as the market continues so to hopefully recover. For the time being, I think that's not a bad range.
I think overall it would be useful to, if you follow the new shipbuilding order uptake and there is a lead time from there into the orders for equipment such as MacGregor, and then obviously there, from there, quite a bit of lead time into deliveries, that gives you a good indication of the directionality of the market.
Okay, good. One more question just on Q4. You highlighted some of the tax related issues in Q4. Is there anything out of the ordinary in Q4 that kind of we should be prepared for?
Well, I think you should consider today's announcement that we do expect restructuring costs to continue in the fourth quarter. Depending a bit on how negotiations go, I would estimate that the number is higher than it was in the third quarter. We also have some things still proceeding from the previous actions that will have an impact. Apart from that, I think the tax rate is a issue to note.
Okay, good. Thank you.
The next question comes from Pekka Spolander from Pohjola Bank. Please go ahead.
Hi, this is Pekka Spolander from Pohjola Bank. First, a question about MacGregor still. You have commented that the delays are continuing in the deliveries, but do you feel that there's a risk that some of those projects will be canceled in the coming quarters?
No, actually, I think the, I'd be more worried about the old orders, some of them going back a while, and we've been obviously looking and reviewing our order backlog as a result of that one. I think the orders that are coming in at the moment are a lot more concrete in a sense that as we are seeing recovery of the market, these ships are clearly needed. They start to have clearly better homes in there as well, and obviously in Offshore, there is a real demand for the support vessels at the moment. I'm not worried about the current. The delays are, I would say, coming from two factors.
One is probably more linked to the customers financing situation and the other that I heard as an explanation is the especially when it comes to the Chinese shipyards and when the volumes have been somewhat low in there, they, there is a tendency there to try to employ as many people and keep them equipped. Some of the deliveries are taking longer than they should take in order to keep the workload up on the shipyards, and that's then hitting our delivery windows as well.
Okay, thank you. Next question I have on net working capital. You are putting quite a lot of focus on net working capital to improve the cash flow. Do you have some special programs going on, and could you a little bit open, what actions you are doing in that business?
We've tried to put quite a lot of management focus in on this one, that's been, each business area is following that one quite closely. Somewhat different requirements within the business areas. In Hiab, our sort of inventory levels in the, in the front line in terms of net working capital are at too high levels, we are looking into reducing those ones. In Kalmar, I think it's a lot to do with the receivables, project deliveries, meeting the project milestones, and collecting the payments from them. Some of the shipments we have, fairly large ones, are behind the letter of credit for some of the more exotic places. We would like to ensure that those are opened and the deliveries will take time within this year.
MacGregor, it's part and tied into the incoming order flow and the advanced payments related to those ones as well. It's, I would say, more sort of day-to-day management of the payments, receivables and then on the net working capital inventories, especially in the front line.
Okay, thank you. Finally, I have third question, it's but more general about the European market outlook. I think that we are all, everybody waiting for some positive signs in Europe and hope to see them in our reports. What's your view at the moment? Your general comment on third quarter activity was quite positive, what about the Europe especially?
It's a very mixed bag. We see actually, if I look at the Kalmar and the activities in the ports are relatively encouraging from our point of view, especially in the smaller equipment. Potentially, the big equipment, large crane investments are not that much coming through, but quite a bit of sort of activity in the other areas in there as well. When it comes to the Hiab side of the business, mixed bag going from one market to another. We don't see them, I think some of the truck manufacturers have reported pre-buys in terms of the changing emission regulations. That's not coming through very clearly or very visibly for us as well.
It could well be that this is more applicable for the things like long-haul trucks rather than the trucks that have cranes. We have still good demand in, as we have seen in the past in Scandinavia, Eastern Europe, Germany, and a very big demand situation in Southern Europe, and also we have seen weakening of the France this year. Very difficult to sort of talk about Europe in general level. As I said, quite a mixed bag in terms of depending on country.
Okay. Thank you.
Your next question comes from Sebastian Ubert from UBS. Please go ahead.
Yes. Good afternoon, ladies and gentlemen. A few questions from my side. To start with, Kalmar, we have seen now another close to EUR 10 million cost overruns in the big projects after about EUR 10 million in Q2 and about EUR 4 million in Q1. Do you see further risk for another round of, say, high single digit cost overruns to hit the Q4 profitability? If so, by when do you expect this to end, and could we add back those EUR 23 million to the 2014 profits, assuming all else being equal? That would be my first question. Second on Kalmar is with regards to the order intake, which fell about 10%. Konecranes earlier this week has flagged that there was some uptick in the Americas market and also that port equipment was still on a good and healthy level.
Do you see some changes in the equipment being ordered, or do you lose some market share? That's to start with. Thank you.
If I start with the project, yes, it's been quite very disappointing in a sense that we had EUR 16 million in the first half, another EUR 9 million, so that's EUR 25 million altogether. Now, if I look at the base where this is coming from, we have now roughly EUR 120 million left in these problematic projects as an order backlog. By the end of this year, we expect that to have gone down to EUR 70 million-EUR 80 million. Yes, the risks are retained still there. As I have said in the past, although our project working methods and visibility is improving, the major mistakes were done right at the outset and it's very difficult to recover some of these positions.
Of course, we are also dealing with the leading edge technology in terms of automation in many of these, and they inherently have always risks in there. Obviously, one needs to put this in context of the size of the order backlog and then obviously proportionally that should then decrease towards the end of the year and moving to the next year. We have very clearly sort of lined up the fact that we will not take further loss incurring projects anymore. I think the encouraging thing of course is that the projects are now actually performing quite well. We have satisfied customers.
Very encouraging and important sign of that one was the further orders from the TraPac project, which is the leading automation project in the Port of Los Angeles at the moment, where we received orders for the next phases as well. In terms of then the market activities in, as I said, in Europe, but also in North America, the market activities in ports are clearly improved compared to the last year. We see in terms of inquires, requests for tender, et cetera, sort of positive signals on these markets. Did I miss, Eeva, anything on the...
I think that was my questions for now regarding the development in Kalmar. I have one follow-up please on MacGregor. We have seen today a similar development in new orders, especially in the merchant segment, falling about 50% sequentially at Wärtsilä. Do you see that customers behavior has changed in terms of ordering equipment? How do we have to calculate this if, say, the number of vessels is increasing, as you just said, from 1,000- 1,600. It's a clear higher increase than you have seen in your orders, which were up 25%. Do you see that the average equipment per vessel is declining, or how does that come that you will see a slower growth in your order intake?
As said I wouldn't be too concerned about the sequence. As Eeva already said, this is a lumpy business where the odd big orders have an impact how they land in terms of that one. I think the important number from our point of view is that year to date we are up 44%, and that probably gives you a better idea of the directionality of the market than any single quarter. Again, there is the same lead time issue there. From the actual order uptake of the vessels, it will take further time for the actual equipment orders. This is a timeline as well that will be playing in there. You will not see the...
When the trend starts to move up in the vessel ordering, this will take some time to move into the, more clearly into the equipment orders in there. The deck equipment and some of the things we do are fairly late in that cycle.
Okay. Thank you.
Thank you.
Your next question comes from Juergen Siebrecht from HSBC. Please go ahead.
Yes, a follow-up. Coming back to this market outlook, in terms of marine. The ship increase to 1,600 from 1,000. I mean, you said bottom out the market in terms of ship orders. I mean, that looks like a recovery. Could, could you specify on that? Coming back to the crane order. I thought the crane orders were quite close to the ship orders, at least in the past. Has this changed due to the market environment, and how is now the concrete lead time between the ship order and then the crane order into your order intake? That would be one follow-up. Secondly, also on the regional exposure, could you elaborate about your emerging market exposure and especially here, BRIC ex China? How big is that?
Other companies have had here impacts from FX. Do you see that for your business, are there risks? Lastly, on the IPO, did you give a reason for the delay of the IPO? If not, could you elaborate on that? Thank you.
If I start with again the merchant and the ship orders. If I look at them, perhaps better to look at this in terms of the DWT, the deadweight tonnage order. That probably is a more relevant number than pure sort of a number of ships. If I look at the order intake here for this year, we are actually, in terms of deadweight tonnage, is up quite a bit from the very poor last year and the year before that one. We are now roughly at the level that you saw ship orders going or progressing in 2005, 2006, which many people regard as the last normal years in the marine industry for a while.
Obviously we had a very strong uptake moving into 2008 and 2009 and then a very strong collapse after that one. And that will ultimately sort of come down into the equipment space where we operate as well and then to the deliveries. Again, it's a long tail business from the orders into the shipments is a 1-2 years cycle, depending a little bit on the equipment. Most of the orders we are receiving at the moment are actually going to be in deliveries in 2015 now. The one that we announced recently, the EUR 37 million Offshore order, was actually a bit exceptional because that should be delivered already next year. Usually you don't see that fast order cycles in there.
Your question around the ship and crane is a good one. A few things in there. First of all, the obviously the world container traffic is driving the ship, sort of the port crane shipments and container ship orders. Effectively, those volumes should go hand-in-hand. I think the expectation release that the container traffic will increase roughly 4% annually in the long term. You should see, but there are a couple of things that are then, of course, change the dynamics. There are a lot more other ships than container ships. If I look at from MacGregor's merchant marine point of view, we do deliver container lashing systems to container ship is an important segment for us.
Proportionally, more important for us are ro-ro ships and bulk ships, where the sort of the our equipment is also playing important. They have slightly different dynamics and are not that directly related then to the crane orders. In the crane side then, of course, these larger ships drive the crane investments, and then you have this cascading effect where the when the large, sort of the 18,000 TEU ships come into the major routes, that means that the ships that they're serving, those main routes are now moving to the so-called secondary routes. That means that the cranes in those ports are now then required to be large enough for the, for the bigger ships coming in there.
Obviously in crane side also, we see customers either going through down the route of ordering a new crane or increase is also looking at the refurbishing and extending the existing cranes, which is an excellent service opportunity for us as well. Eeva, would you like to sort of comment further on this?
You had few questions still, if I catch them all. On the regional exposure, BRIC minus China, of those three countries, Brazil would be most important. There is a pretty active port on the Kalmar side port activity. Obviously the Offshore market in Brazil is also very active. Well, I think FX probably helped no one in this quarter. We had a negative 2.5% effect on our third quarter sales. The final question I think was on the IPO delay. Yes, we say in the interim, specifically two reasons for the delay.
One, as our CEO was already referring to the idea we want to focus on the integration of Hatlapa, which we hope to start in the very near future. Obviously also the market conditions as we have been discussing today.
Yeah. Okay. Back to the market exposure as well. Obviously very different situation in different business areas. Here very much the exposure of course in the U.S. and the European markets. The proportion of the developing countries is much smaller in there. Kalmar obviously the port projects in developing countries are an important opportunity for us, or even though the majority of our revenues in Kalmar comes from European port and terminal operations today. MacGregor is a lot more complex because it's a sort of complicated value chain. If you have a, say, Offshore drilling operation happening in Brazil, that might be served by a vessel that is owned by an American operator that orders that from Korean shipyard that we then deliver to.
From our point of view, the revenue is probably recognized as an APAC revenue. The actual owner and the one who takes that up is a U.S. operator, but it's actually operating in the Brazilian market. Not that easy to sort of follow that trail.
Okay. Yeah. Just I didn't get the answer for the I think order of the crane. When after which time, if you order a ship, the crane is ordered or the crane order is placed with you? Is it immediately when a customer orders a ship or is a delay? If there's a delay, how long is the delay? Lastly, on Brazil, I heard there's a lot of potential activity, but I spoke to a colleague and he said that's already going on for many, many years.
All the plans that they have, I mean, there's not so much execution on the port side. Thank you.
On the, on the crane issue. If we're talking about MacGregor cranes, you need to differentiate between merchant ship and Offshore. In merchant ship, the delay is has been since very, very long time, some six-12 months after the ship is being ordered. That's only when the crane orders are placed.
Mm-hmm.
However, when we talk about Offshore cranes, then actually the whole support vessel is pretty much built around the crane. The sort of there is not a similar delay. The crane is kind of an elementary part of that order. It typically is in the very early-
Mm-hmm.
early stages.
You can say that the customer is ordering crane and he needs a ship around it.
Mm-hmm. Okay. Good.
We have a follow-up question from Sebastian Ubert from UBS. Please go ahead.
Hear about the quality in UBS order book you have now within MacGregor. You flag that the shipping orders are now back to kind of more normalized levels seen in 2005, 2006. Does that also imply that you will see margins, say around 7%-8% longer term in your business? Do you see some scope to get back to the 10%+ level or even above that, which was supported by the boom 2007, et cetera? Thank you.
I don't think I want to speculate about the upcoming years and their margins in there. Obviously, today's margin is very much dictated by the factor of the top line reducing as it is. Even though we operate very flexible business model, when the market is bottoming out, we have not been able to produce more than the numbers you have seen so far. Obviously, again, when the market hopefully picks up where the signs are, that should then also then sort of affect favorably our EBIT margin as well.
Okay. Thank you.
Thank you.
There are no further questions at this time. Please continue.
Thank you. Okay, if there are no further questions, I thank you for your attention today. Have a good day. Thank you.