Thank you for standing by and welcome to the Cargotec Corporation Q2 2013 interim report. I would now like to hand the conference over to your first speaker today, Ms. Paula Liimatta. Please go ahead.
Good afternoon, ladies and gentlemen, and welcome to conference call on Cargotec's second quarter 2013 report. My name is Paula Liimatta, and I'm Head of Investor Relations. Today, we have a small live audience here in Helsinki and also 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. Good afternoon from my behalf as well. I'll cover the highlights of the Q2 very shortly. I hand over to Eeva, and who will dive into the numbers a little bit more in detail. After that one, I'll share the latest outlook with you. Also I'd like to discuss a bit more in detail about drive for profitability improvements within Cargotec and what we plan to do around that one to give you a bit more light in terms of the measures we are taking and the potential of impact, those impact moving forward. With that one, let me start with the highlights of the Q2. First of all, we concluded the acquisition of the Hatlapa Group from Germany.
I'll come back to that one later in the presentation to describe the strategic log-logic and the impact of that acquisition for Cargotec and MacGregor a little bit later today. In terms of the actual numbers, the order intake declined compared to the Q2 last year by 7 percentage points, but there is great variations in there between the different business areas. I'm very delighted about the MacGregor extremely good order intake in Q2. It actually increased by 67% compared to same time. Last year is one of the strongest order quarters we have had for quite a time, for about two years in MacGregor. Eeva will discuss about the outlook and the order intake a bit more in her presentation as well.
To compensate for the high growth in MacGregor, the order intake in Kalmar actually declined quite a bit. Having said that one, we had a very strong sort of order intake, exceptionally strong order intake in Kalmar last year. That, for example, included one of these mega projects order worth of roughly EUR 100 million . If you look at the exclude the one-time impact of such an orders and we didn't have similar orders coming in in Kalmar, the rest of the business was actually staying at the relatively same level also in Kalmar. Of course, Hiab order intake is more related to very short-term sales and remained fairly steady in the Q2 as well. Operating profit, excluding the restructuring cost, was EUR 37.5 million .
A slight decline from last year, and that's really explained by the declining sales of MacGregor. The decline in MacGregor in terms of operating profit was roughly eighteen percentage points. Sorry, in terms of revenue. Then at the same time, the Kalmar and Hiab actually were growing and showing profitability improvements. Again, Eeva will cover those more in detail. Really the main driver for the profitability decline was a sales mix difference between the different business areas. In terms of the underlying profitability, both in Kalmar and Hiab, we have started to show a sort of direction of improvement in there. Cash flow from the operations was a disappointment. It was still negative, and this included the sale of Tampere real estate as a part of that one.
That's clearly a focus area for the management and improvement area when we move to the second half. With that one, I'd like to hand over to Eeva. She will discuss the numbers a bit more in detail. After that one, I'll talk about the Hatlapa acquisition, the outlook and the profitability improvement measures in the Cargotec a little bit more in detail. Thank you.
Good afternoon, everyone on my behalf as well. Going forward in the presentation, I'll come back to the details on the other numbers. From this slide, I just want to note the EUR 0.36 earnings per share and then for the first six months, EUR 0.46. Looking at the performance, operational performance from this slide. On the left-hand side, you see our sales and orders, EUR 833 million of orders, which was 7% down on the EUR 892 million from a year ago. Bearing in mind that the EUR 892 million contained one very big order for Kalmar on the large crane equipment side.
We are certainly quite pleased about the EUR 833 million. Sales-wise, EUR 836 million, slightly down from if you look at it year-over-year, but again, important improvement from the first quarter levels, which as you may remember, were on the low side. That also then helped, looking at your right-hand side on the profitability volumes helped drive profitability and we also then saw better some improvement actions starting to be visible in Kalmar and Hiab results. EUR 37.5 million of operating profit excluding restructuring costs. Looking at the business areas, each more in detail, starting with MacGregor, a very good order intake, EUR 284 million.
Those of you who followed us have noticed that we had a big number of offshore order announcements during the quarter, and that really led to this very, very high number. Market in offshore is very active, but still this high level of a quarter in order intake is maybe somewhat exceptional, and that's maybe good to bear in mind. Sales still a bit on the low side, EUR 211 million for the quarter, up from the first quarter, but which helped also profitability improve, but we are still clearly below the double digit level we are used to. We come back to that in the guidance part as well.
The market overall in MacGregor is in shipping is challenging with the really the exception of offshore and some other special ship types still. Looking at Kalmar, the market is market is quite healthy, although in the second quarter, we really didn't have any bigger equipment orders. The 342 made quite a lot of smaller orders. Sales up to EUR 405 million and is in line with our also, if you look at the sort of order book we started the year with, it should develop also on the sales top line level. Profitability 3.9% and this is excluding restructuring costs.
Please note that this does include EUR 10 million cost overruns in projects in the second quarter, and also EUR 1.5 million loss from the sale of Dunbar real estate. Clearly the sort of underlying business in Kalmar, there are many good parts, good parts of the business as well. Looking at the projects a bit more in detail, just to update you on where we are. We have been working with nine major projects, as we call them, with a total value of EUR 400 million. The impact on 2013 sales is a bit more than EUR 200 million.
Now, if we look at the second half, about half of that is yet to come from the, which means that then from the order book at the end of June of EUR 180 million, some EUR 80 million will go into 2014 sales and revenue recognition at that point. All together, in the first six months of the year, we had cost overruns in projects of EUR 60 million. It's clearly a huge burden on the Kalmar operational result. We have made big improvements in various areas of the project management, but as we have discussed earlier, it is somewhat of running behind a moving train all along. That unfortunately is visible in the fact that the second quarter cost overruns were quite significant.
Nevertheless, we still firmly believe that with the implementation of these projects, Kalmar will be the leading port solution provider in the industry and the future market potential remains attractive. That's the goal we are working against. Looking at Hiab, the market, no real big changes as you see from the order intake numbers as well, 208 million orders for the quarter. It is a market where U.S. is healthy and Europe has some healthy parts, but overall is obviously a bit sluggish following the overall economy.
Sales were slightly up from the first quarter and from a year ago, so EUR 221 million worth of sales. That partly also helped contribute to the 4% margin just in operating profit. There we do start to see some impact of the improvement actions taken and our CEO will come back to the roadmap later in this presentation. That on the segment level operational performance. Looking at group level items, again, cash flow from operations, clear disappointment. We do here expect an improvement in the second half of the year as our operational performance is expected to improve in line with our guidance.
We do expect a reduction of net working capital. We are at this point of the year, tying quite a bit of cash in the projects and also in advances from waiting for customer payments. Service sales are very flat. This is somewhat of a mixed picture. It's actually up in both Hiab and Kalmar, but down in MacGregor, where the service market is clearly tougher than in the other two segments. EUR 192 million sales in services for the quarter, which gives 23% if you look at it from, as a share of overall sales. These pie charts are as such no big news.
You're all very well aware of the fact that, due to the low order intake in 2012 in MacGregor, the relative share of that business has slowly decreased. Obviously the recent order intake will take some time to, so that impact these numbers. Also Asia Pacific share of sales is following the MacGregor development as the MacGregor business has the highest share of Asia Pacific business. With that, I think we're we conclude the details and we go into the outlook, and I leave this to M ika again.
Thank you, Eeva. Related to outlook, we have a sort of sharpened the outlook a little bit. In terms of the top line, our outlook is same as before, i.e., we expect the top line to be roughly or slightly below the 2010 2012 levels. In terms of the operating profit, excluding the restructuring cost, we are now saying that they will be at or slightly below the 2012 level. Previously, we were saying that they were roughly at the level of 2012 level. The main reason for expanding the guidance also downwards is related to the top line and revenue of MacGregor. In the Q1, we said that we expect MacGregor revenue to be EUR 850 million.
We had a fairly good visibility on that one, and the order book was covering that well. What has happened in terms of the top line is that there were a specific customer case related to shipyard and the financing difficulties they have had, and that has resulted a delivery from this year into the next year. The sale is still there. The customer still needs those ships. Unfortunately, due to the financing issues, the shipyard is not able to order and deliver those specific equipment this year. This has an impact of roughly EUR 30 million into that EUR 850 million, and that is very difficult to cover at this time of the year. The other shortfall relates to services sales.
It's very clear at the moment that, due to the difficulties that the shipping lines are experiencing, they are doing everything to cut costs, and that includes maintenance and servicing costs. Many of them, the ships need to be serviced at certain interval. That's a regulatory requirement. Generally that interval is about 5 years. Many of the ship owners have now gone back to the authorities are requesting expansion into that one to seven years or so, we are seeing many of those sort of requests granted. That obviously pushes back the services and is very clearly visible in MacGregor services top line. That impact for the 2013 is in the neighborhood of EUR 17 million. Those two together, we are now guiding closer to EUR 800 million in terms of revenue for MacGregor.
Due to the higher proposal profitability, that also means that our expectations regarding the whole year margin are now at or slightly below the 2012 level. These numbers do not include the impact of Hatlapa acquisition. The acquisition was concluded a week ago roughly. Obviously the closing depends on the required authority approvals. Roughly timeline-wise, we are expecting that to be closed somewhere in the neighborhood of October. Some of those numbers would become visible in our Q4 numbers. Talking about Hatlapa, few word about that one. Privately owned group primarily based in Germany, involved both in merchant as well as the offshore deck equipment.
In terms of sales revenue between the merchant or offshore, the mix is roughly same as in MacGregor today, about 70% merchant, 30% offshore equipment. The enterprise value, price of the acquisition was roughly EUR 160 million. Some proceedings of that one will be in cash, roughly EUR 70 million. There will be a EUR 35 million convertible bond that the sellers of the Hatlapa can turn into MacGregor shares upon the listing of the MacGregor. We took some debt as well from the Hatlapa deal as well. Approximately 585 people, look, the primary bases in terms of development and manufacturing are in Germany, Norway, and in certain countries in Asia.
In terms of the impact for the numbers, the profitability of the Hatlapa, the EBITDA number is somewhat lower or slightly lower than the MacGregor respective numbers. However, the profile is different. Their gross margin is actually clearly above MacGregor as well as the EBITDA is better, but they are having certain write-offs in terms of the depreciation, sorry, for the related certain acquisitions they have done previously in offshore area, and that's impacting their EBITDA slightly so. That will sort of start to mix through with the MacGregor numbers moving to the next year. In terms of the rationale for the Hatlapa, we have been in the discussion with the company for a few years actually now, and very happy to be able to finally conclude the deal.
What we see happening in the marine sector overall is that the sector is consolidating, and there is quite a lot of movement going on in there. The acquisition power or the procurement power of customers is increasing. The worldwide share of the largest shipyards is increasing at a great rate. If you compare to the 1999, the large shipyards now have about tenfold the volume in terms of deadweight tonnages than they had at that time. Also, the ship owners are consolidating at the same time, and more and more people are looking to buy larger integrated packages, bigger sort of entities from one supplier. MacGregor has an extremely strong share and position in different kind of cargo handling deck equipment in the marine sector.
This will definitely strengthen that position. We clearly see that MacGregor has a now chance and has effectively become a tier one supplier for both shipyards and ship owners when it comes to deck machinery, as that then enables us to participate, deals and be a strong integrated sort of solution and system provider for our customer base as well. One of the key important product areas for Hatlapa has been the winches and combine that with MacGregor own winch development and production. That makes us the worldwide leader in that segment. This is clearly supporting the aggressive growth plans we have MacGregor both in offshore as well as in the merchant marine. Will be strengthening our product position as well. As said, we clearly see that this sector is consolidating.
There is a number of moves going on, and our wish is to actually continue the growth strategy in the MacGregor, as well as to potentially participate in further consolidation that could take place in this industry. This will not impact the listing plans we have MacGregor. We have said that the IPO in Singapore for MacGregor will take place earliest in the first part of 2014. This acquisition does not change that guidance one way or the other and does not have a direct impact into that one as such. That's about Hatlapa acquisition. Next, I'd like to turn to something different.
Talking to a number of you analysts and then also investors, one of the feedbacks I got throughout my sort of first three, four months in the company is that, in terms of sharing the visibility on the improvement plans and their potential impact, we have probably not painted the picture very clearly for you. Now we are trying to sort of talk about a little bit what's the roadmap for us in driving a better financial performance in the Cargotec. Also sort of give you a little bit highlight what you can expect in terms of the result improvement as well. I kind of think this in terms of the three phases. Already before I joined as an CEO for Cargotec, a number of savings initiatives and improvement initiatives have been taking place.
For example, overhead reductions and certain things that are already starting to be visible very clearly in our Q1 and Q2 numbers as well. We want to extend and continue to drive those improvement initiatives. Very clearly in terms of just getting quick fixes and fixing some of the things that have not been in such great shape, the biggest short-term potential for us effectively is just to improve and bring the current business performance of our current businesses up to an industry standard. If I look at the performance of some of the business areas, divisions and on the Mac, Cargotec area, it's very clear that we are not performing up to the industry level compared to the peers.
We know pretty clearly what are the measures that need to be taken to drive for that performance, I'm going to explain them a little bit more in detail in a moment. Driving effectively towards the industry performance has a great EBITDA potential impact for us. Beyond that one, obviously, we can't be satisfied by just performing to the industry standards. We need to decide at what specific areas in terms of businesses, competencies, and skills we actually want to then become better than our competitors and the industry as well. That clarification work is still going on, and we expect to come back to that one later in the year. That, of course, includes defining what businesses and specific areas we want to be involved in as well.
Very important part of sort of laying the foundation for this performance is in making sure that we have better globally integrated systems and tools. Our ERP rollout is still going on. Overall, I would say that the, in terms of global processes, globally integrated operation systems and tools, Cargotec has still ways to go. We are having many of those plans already implementation, and we will introduce further measures this year. One clear area on performance is, of course, not related only to the EBITDA numbers that I will explain a little bit more in detail, but also in terms of our managing our net working capital and cash flow better down the road as well as the numbers so far show for this year we clearly are not on the satisfactory level on that area.
Next I'd like to sort of cover the main improvement initiatives and their impact by business area, starting with Kalmar. Kalmar already initiated a number of global organizational efficiency and R&D impacts late last year. Those numbers start to be visible very clearly in the cost level of Kalmar at the moment. We have discussed quite a bit about the project delivery capabilities. In many of these large projects that we now have roughly EUR 180 million going, a lot of the damage was done right up on the specification and scoping of the project. We have clearly improved in terms of the people, quality, processes, and tools managing those projects. Obviously in many of those ones, the damage was done quite a while ago, and we are starting to sort of control that part.
Our sort of capabilities are improving very clearly in terms of looking at further expansion and new projects. We are much more confident in terms of our capability to manage them on a profitable way. We are changing our product and production footprint considerably, and the move in Hiab has already been done in terms of moving the so-called counterbalancing equipment from Lidhult production into Poland as well. Another important step in terms of driving the improvement and profitability in Kalmar is the development in the services business. We are trying to, and will be moving more from sort of labor-oriented, sort of selling pair of hands into the IP based, proprietary based services and processes.
Couple of examples that when we launched the Kalmar Care, a new services concept and product and services productization in the TOC conference a while ago. One good area of example where also we see great expansion possibilities in terms of services and development is the crane refurbishment. There are thousands of old cranes in there that need to be modernized, and they also need to be expanded, taking into account the increasing size of the ships. Kalmar acquired rest of the Mareiport, S.A., which is established and market leader in Europe in terms of crane refurbishment. We see great expansion potential in terms of services in this area as well.
The Rainbow-Cargotec Industries is an important step for us in ensuring our product competitiveness, not only in terms of production costs in China, but also we are moving the whole value chain related to engineering and R&D in there. I'm very happy to tell you that we have actually now delivered our first orders for RTGs out of the factory close to Shanghai. We are very satisfied in terms of the quality and cost level of those products coming out of the new joint venture. Clearly a very growing area at the moment, the focus area for us is the port automation. As Eeva was saying already in her presentation, although we of course can't be satisfied with the profitability and cost expansions we have had in these large projects we are engaged. We are clearly made an investment decision there.
Those projects will enable us to become a clear market leader when it comes to automated port solutions. We have a number of assets in there that are actually strengthening our position. Among them, and maybe one of the most important is the Navis acquisition we did a while ago. Navis is actually performing very well and above our expectation in terms of revenue and profitability at the moment. Overall, there are many businesses in Kalmar that are actually doing well at the moment, but of course, they've been partly masked by the different balance sheet items and cost exceedings we have had in the Kalmar area. Another important profitability improvement area is clearly the improvements in design to cost, to ensuring the product cost competitiveness in those areas.
If I look at the financial impact of number of these profitability improvements, roughly we expect a EUR 20 million run rate improvement by the end of this year, primarily driven by the organizational efficiency and refocusing of the R&D, as well as our project delivery capabilities. Furthermore, in terms of the different product production footprint, development of services business, design to cost, et cetera, initiatives, we expect a further run rate improvement of approximately EUR 40 million by the end of 2014. In Hiab, quite a large number of different product improvement initiatives rolling out as well. We have looked at the rules to market. We have selected not to participate in certain product market areas. Those are shown as one of items.
In again, in Q2, we canceled certain product, region sort of, activities as well, and thus driving better proposal profitability there as well. The same as in Kalmar, we are changing the production footprint in Hiab as well, moving the European production into the Polish facilities as well. We are fairly far down with that project as well. Different efficiency improvements, process improvements in Hiab as well that we see enhancing our activities as well. Very importantly for us, the improvements in design to cost in number of areas. Our product quality is extremely well and extremely good. Our customers' satisfaction is a very high level, but we clearly have over-engineered some of our product areas.
Hiab is now rolling out number of new product developments. We introduced a new LOGLIFT a little while ago. We introduced a new MOFFETT, sort of truck-mounted forklift, electric version of that one a while ago. We are expecting to roll out number of important new product introductions that will improve the product competitiveness in terms of functionality, but will also have impact in terms of the cost of those products as well. We clearly see much improvement possibilities in terms of our distribution, marketing and sales activities. We hired a new head of our sales and marketing from Volvo Construction Equipment a while ago.
He has now started, we will be driving a number of initiatives, improving and enhancing our distribution, our pricing capabilities, and generally sort of the disciplines and better efficiency in terms of processes and tools in our market activities as well. From Hiab's point of view, the current initiatives should have a small impact already this year, roughly in the neighborhood of EUR 3 million, 2013. The improvements in design to cost should result roughly EUR 15 million gross margin improvements by the end of this year. Further initiatives throughout this and next year should improve our run rate by additional EUR 40 million by the end of 2014. In Kalmar case, the story is somewhat simpler.
The operation today already is performing at a high level and is generally quite a sort of lean and mean machine. This is more driven by the market development. In many of the product areas that the MacGregor is our market position today is already so strong that the only way to sort of drive up the revenue is the actual recovery of the market as well. We have developed and are very happy with our development in the offshore. We have a number of strong orders coming in, and the investments and acquisitions we did for offshore capabilities in Norway and Singapore are clearly starting to pay off.
We are further in terms of sort of taking into account the downturn in our revenues, we have taken and are taking certain organizational operations efficiency improvements in there. We have clearly great possibilities to develop MacGregor Services business further. We see organic growth possibilities, as I said, to the past investments in our offshore business, and obviously then growth through the acquisition as well. The Hatlapa is a good example of the direction we are moving in there. Those are obviously the listing preparations are continuing as well. We have not given any more specific guidance to MacGregor other than that the current downturn, we are responding to that one in terms of introducing further savings measures, roughly in the neighborhood of EUR 4 million. We have not been particularly specific about the 14.
One reason for that one, obviously, is that the upcoming listing that puts certain restrictions, what we can say about the forthcoming year as well in there. With that one, and hopefully this will sort of enlighten a little bit about the efforts we are doing and gives you a little bit better sense in terms of the profitability improvement during initiatives and their potential impact, both in Kalmar and Heber side of the business. With that one, I'd like to thank you for coming here to and participate in this conference call, and I think we open for questions and answers.
Thank you, Mika. Okay, ladies and gentlemen, we are now ready for your questions. We will start with the questions from the live audience in Helsinki and continue with those on conference call as participants. Please use the microphone and state your name and company to benefit the conference call listeners. Okay, as said, let's start from the live audience in Helsinki. Anyone?
Pekka Spåre from Pohjola Bank. Couple of questions. First, concerning Kalmar, you have now booked EUR 60 million extra costs in the first half related to these cost overruns. Can you say that most risks are now behind, or how do you see the situation? What kind of risks are still there to be expected in the second half?
I wouldn't declare the victory in terms of the risk being behind us, but I would say that the risk profile will somewhat change moving forward. Obviously, when the backlog decreases, that will on its own, improve the situation. A lot of the engineering and the hardware delivery, site deliveries are ongoing or happened already. That leaves less room for further cost overruns in that side area. All of these mega projects, as we call them, have a strong automation and integration aspect involving there as well, and that work is only started.
Moving from the sort of overruns that we have clearly seen in the engineering and site cost and implementation, the risk are now more related to sort of the functionality and the performance of the equipment whilst on customer side and then related to the sort of automation and integration implementation in there. Those risks would involve potential liquidated damages, performance sort of guarantees or delays from the customers. There are still risks there that could be visible for the second half of the years and some of those will be with us for the first part of 2014 as well.
Thank you. The second question concerning this Hatlapa acquisition, do you expect to get some synergies in the supplier side or subcontractor network? It seems that the Hatlapa and MacGregor, they have quite similar type of operations, a lot of the production is outsourced.
The business models are somewhat different. Hatlapa has a very efficient, highly automated factory operation in Germany, and that, for example, is manufacturing overnight spare parts for deliveries. There are some interesting possibilities there. We can do cooperation as well. We see quite a significant synergies between Hatlapa and MacGregor. The products are mostly complementary. There are significant sort of top line as well as cost synergies that we will be then pursuing. We will probably come back to those ones a bit more in detail after the deal has been closed.
Thank you.
Hello, Eino-Antti kansanen from SEB Bank. Still on the cost overruns or the project, big project in Kalmar. Earlier, if I remember correctly, you talked about EUR 200 million of the project where there are cost overruns, and that those had been booked so that they would come through with a 0% margin this year. Could you talk a bit about the way you're talking about it now? Is it that you have found similar problems in other big projects as well, and what do you expect?
Well, this is actually what we wanted to say today is very much a repetition of what we said earlier. We're talking about roughly the same EUR 200 million impact on revenue for this year. Wanted to open a bit more than specifically the order book now at the end of June and the impacts on the second half, but also early 2014. No, the number of the projects and the projects that are in this group are exactly the same. As such there is nothing new apart obviously from then these cost overruns now that we reported for the second quarter.
Okay. Thank you. My mistake. The second question on savings, where are you, where, what is the run rate for savings currently in the different businesses?
In terms of the overhead savings, I think we were indicating about EUR 30 million improvement in cost levels. Our run rate at the moment, we are pretty well at that target at the moment, right, Eeva?
I would say that we, with the sort of also the numbers our CEO was showing for the business area, and then if you add the corporate savings, we are very comfortable that we will be clearly above EUR 30 million at the end of the year. That impact will be visible in the 2013 numbers.
Thank you.
Jari Harjunpää, Nordea Securities. Still about those projects with some profitability problems. How about the cash flow profile? Are they actually consuming a lot of cash, or what's the situation? Is there a lot of down payments or?
Very clearly the disappointing sort of performance in terms of cash flow for the first half was one big factor there was the project implementation. We are right now in the middle of a lot of the deliveries, and hence there is quite a bit of net working capital tied into those ones. As Eeva was indicating, we expect a significant improvement in the second half cash flow. One important part of that we are our capability to release the net working capital and get payments from the customer projects.
Just to continue in question, it's basically the progress payments are then coming in for those progress projects.
Yeah. The progress payments coming in after the deliveries are one important factor on that one.
Okay. Thank you.
I think we can now start with the questions on conference call participants on phone lines. Operator, please.
Thank you. As a quick reminder, if you wish to ask a question, 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. Your first question comes from the line of Juergen Doldersum from HSBC. Please ask your question.
Good afternoon. Question on the acquisition. You say this margin was somewhat below marine, it is still double digits on a standalone basis, and is there further upside from synergies? On marine, the order intake, and could you split that to onshore and then offshore? How would be the margin quality? Is there a high portion of offshore and rural included there? How do you see demand in marine, which I think remains important, develop further in the second half? I think Wärtsilä was more optimistic today in terms of the merchant demand. How do you see that?
Could you also comment in terms of marine, on certain developments in the market here, the depreciation of the yen? What could it mean here in terms of Japanese shipyards? Could there be more price competition on the shipyard side and which could then positively impact the demand for ships? Also, on the price hike which we have seen here in July for shipping rates? Thank you.
Yeah. That was quite a few question. I'll try to respond first I can remember, and I'll leave Eeva. She clearly has written this down. Let me start with the Hatlapa acquisition. The Hatlapa standalone EBIT is a high single digit number. And we, as said, expect synergies. Having said that one, as I said, it's slightly different profile from, MacGregor current profitability profile, partly coming from the slightly different business model as well. Hatlapa's gross margin is well above the MacGregor gross margin. Their EBITDA is also at, I would say at a good level. Then, due to the acquisitions they have done in the offshore side, the depreciation in impacting the EBITDA quite a bit, and that's at a lower level than the MacGregor is.
Again, I'll come back to the synergies more in detail after the deal has been closed. As I said, we are seeing significant opportunities both in top line as well as in the cost side of that one. About maybe I'll start with your question about overall, how do I see the marine industry? I would say that I briefly looked at the Wärtsilä sort of statements today, and I would say that we are pretty much in line how they see the situation. I think it's probably too early to sort of call for an sort of recovery at this stage, but I would also say that we are probably quite comfortable of calling bottoming out at this stage.
We already saw sort of positive indications in the Q1, and I think those have been reconfirming. As you said yourself, the contracting rates are improving in the shipping at the moment. Also we see that there is a sort of upward pressure in terms of shipbuilding cost as well. There has been more ships ordered beginning of this year, I think more than 700, if I remember number correctly. That is more than the previous year. Overall, I do think that we start to see a sort of an improving picture in the marine sector. Obviously, the offshore side has continued to be strong throughout. We see that strong demand in the offshore side continuing whilst we see a potential recovery taking place in the merchant shipping side of that one.
I think I need to hand over to Eeva to sort of look at the further questions. Thank you.
Okay. Taking up on what remains, I think you had a question on the order intake in MacGregor. Yes, offshore was a significant part. Close to half of the second quarter orders came from offshore. Really that was the sector that was clearly most active, whilst the other sectors or ship types still on the merchant ships side were quite low despite the fact that there may be these positive signs in the market. I think it'll take some time before they are visible in our order intake. On the margin quality, we are satisfied with the quality of the offshore business.
We do expect that as we get more volume than the business up and running, that also kind of creates opportunities to improve our performance from what it has been in the past. I think your final question was on the currencies on the Japanese Yen. Obviously these currency rates can have an impact, and at least earlier have had impacts on the competitiveness of the different shipyards in different countries.
For MacGregor, our strategy for quite a long time has been that we need to be strong in all the shipbuilding countries, be it China, South Korea or Japan, as we cannot sort of base our business or even claim to have much visibility on where the FX rates go or don't go. Difficult to say if that will have an impact. Depends, I guess, obviously on how permanent a change that will be.
Okay.
I think your-
Yeah.
... that was pretty much your questions.
Yeah. Only catch up here on the freight rates. Normally you say higher freight rates, better demand, but at the moment is the low freight rate not also a trigger for, in the bulk area at least to buy these larger ships, because the other ones are not worthwhile? Maybe just coming back to offshore. You, you expect it to remain strong. Do you see Q3 orders in marine, so on Q2 level, or do we come down again? Thank you.
Well, I think that in order for us to reach the second quarter level in orders in MacGregor, we would need to have a similar high number of announcements made. At least it's been a bit slower in July. I think that you should probably expect that this was a bit or the bit, a lot of things happening in one quarter. Overall as such, we see no reason to change our view on the offshore. We expect the market segment to continue active. The freight rates are tricky.
There's been some upturn even, but I think your point is correct on the fact that the economics do speak for the bigger ships as in these sort of rather tight and tough circumstances the ship operators are living in. That is one reason why we think that there are these orders coming for very big ships as the economies are quite appealing. Of course, they are not for everyone and not all the ports. It is a balance of-
Mm-hmm.
... of having different sized vessels
Mm-hmm.
For different routes.
Thank you.
Your next question comes from the line of Antti Suttelin from Danske Bank. Please ask your question.
Yes. Thank you. This is just a clarifying question on your profit improvement plans. If we take Kalmar for example, do I understand correctly that you are aiming for EUR 20 million savings by the end of 2013, and then another EUR 40 million savings by the end of 2014? EUR 60 million together by the end of 2014. Is that correctly understood?
A small correction. The EUR 20 million savings, which is based on the actions launched in 2012, are fully expected in 2013. As I commented earlier, we're well on the run rate after the six months already, so we're very comfortable that the EUR 20 million will fully be visible in 2013. For the EUR 40 million, we talk about run rate at the end of 2014. You should more view it if you divide the annual run rate by 2, so to say. Again, you end up with roughly EUR 20 million also in 2014.
So the, the four-
Kalmar, the EUR 40 million does not include the EUR 20 million?
It is additional, yes.
If we compare 2015 cost level relative to 2012, it should be EUR 60 million lower?
That's correct.
Thank you.
The next question comes from the line of Christer Magnergård from DNB. Please ask your question.
Yes. I was just about to ask him the same question as the previous analyst. If you look on this cost savings program or the profit improvement program, is that dependent on volume at all or is it just based on the current demand levels? Secondly, when you look at the Kalmar, the EUR 40 million improvement you're targeting by end of 2014, does that include that you will not have any project cost overruns or is that just excluded from that? I'll stop with that.
That's not take into account any considerable changes in the volumes. This is sort of based on the current run rates, roughly. In our plan is not to take loss make projects in the future. I think we've been quite clear in there. It's very clear that there are further opportunities in the projects side, as Eeva was saying. It's also very clear that the generally the average profitability of those projects are not that great. Many of them are quite demanding. However, our plan is not to take anything that we forecast to be at a loss at that stage. That was for somewhat different situation. We clearly wanted to strengthen our market position and expand the volume and be the leader in automation.
The projects, the nine we have at the moment, they are done at the risk and of course more those risks have more than realized. The plan moving forward is to only do them at the positive margin.
To clarify your question, the EUR 40 million is improvements coming from other areas. They are on top of the fact that we obviously hope that we don't have EUR 16 million in the first half of next year as well.
Yeah. Secondly, on continuing on Kalmar. If you exclude this project cost overruns in the second quarter and also exclude the one-off you had, underlying profitability was actually quite okay. What has driven this improvement in profitability? Is that a mixed thing or is it entirely cost savings that are started to be seen here?
I think you're picking up the right point. Many of the Kalmar businesses are actually pretty good. The Navis, as I said, as a software business, we are well on the plan or ahead of the plan on that one. Bromma, the spreaders is performing well at the moment. The mobile equipment business, we've been able to drive the product cost improvements in there that is actually showing us an improvement in there. We see healthy demand in our mobile equipment side. A lot of the underlying businesses are actually doing relatively well and have been masked by the some of the balance sheet items and cleanups we are doing there, as well as the product and project cost overruns.
Also MacGregor, you, delays in deliveries or postponement in deliveries, have you also started to experience cancellations or is it only, postponements this far?
No, these specific are postponements. As I said, there is a clearly a demand for this particular equipment and that ship, we have double-checked that with the customer. This is more a question that they probably need to find a new shipyard for the build-out, that will slip the deliveries from this year. We have not seen postponements in our order base. Sorry, cancellations in our order base.
Great. Finally, you also talk about that you will announce another program later this year. Is that similar size as this program as you outlined today, or is it even larger?
I mean, that's slightly two different things. This program now that we are showing is really to aim to driving what I refer as an on par performance on our existing businesses. The plan really is to very much to be focused on sort of, just getting our businesses in shape, especially in Kalmar and Hiab, where we have clearly underperformed the market so far. Beyond that one, we obviously need to look more strategically then, where do we drive sort of superior performance against our competitors, and what are the ways and tools on that one. As well as then of course, like any business, you need to be able to review your business portfolio and decide where you want to further invest and what businesses you don't necessarily be in.
That's something that I would say is not on the agenda until next year.
Thank you very much.
The focus at the moment is just on the sort of execution of the current plans and driving up the business performance in existing businesses.
Okay. Thanks.
Your next question comes from the line of Johan Eliasson from Kepler Cheuvreux. Please ask your question.
Yeah. Hi, it's Johan here. I just have a short question remaining really now. On this Hatlapa acquisition, you're awaiting the antitrust authorities, I suppose. What's the risk there? Obviously, in history you have had some problems with antitrust issues when trying to buy some companies.
We don't see any risk in here for, we don't have actually effective product overlap in there. I think generally the market definitions are not that narrow in the marine sector. We don't foresee. This is more a question of just timing. Obviously, some of the authorities are probably enjoying or about to start to enjoy their summer holiday. That's why we sort of think that October is probably fairly realistic.
Okay. You plan that the deal will be done in October?
Yeah. Closing will be roughly in October timeframe, but of course that's not in our hands.
Oh, okay. Thank you.
The next question comes from the line of Jurgen Doldersum f rom HSBC. Please ask your question.
Sorry to ask again, I have another question to regarding offshore. I mean, what makes you so sure that this remains a strong business? I mean, it has been very briefly over the recent years. Now we have this shale gas theme, and if that is spreading, couldn't it make your offshore exploration less worthwhile? That's a follow-up on that. On Hatlapa, is it fair to assume that EBITDA margin would be more in line with the marine? I think EBITDA margin, you stated is below due to PPA depreciation. Apart from that, the business seems to be more vertically integrated, if I understand that right.
So the, it's more cyclical, or how would you see that? Lastly, on Kalmar, again, on the underlying profitability, just to get it right, what you consider as cost overruns are those zero-margin orders which you still have booked. If nothing new pops up, then it remains as you have stated before, with the remaining deliveries in H2 and H1, 2014. Thank you.
Thank you. Again, a number of questions. If I start with our confidence level in offshore, whilst we are looking at the further consolidation and expansion possibilities, we have obviously spent quite a lot of time trying to understand the offshore market and demand, and we are very, very confident about that one. The underlying demand in oil is continuing strong. The shale gas, of course, will have an impact, but that's primarily actually within the United States. Of course, the United States' role as an energy consumer today is not what it used to be. It is the developing markets that are driving the energy requirements very much today.
There are considerable new oil fields that are discovered whilst the current oil fields and production of some of them are expected to actually decline, in some cases quite strongly in the coming years. There is a specific sort of change in the way the production is happening in offshore. More and more, the production is moving from the surface production or exploring, such as oil rigs, into the seabed, exploring and production, where more and more the equipment is actually not located on the surface. It will be actually located at seabed, and that's clearly a strong trend happening. That actually means that the requirement for load-handling equipment capabilities to lift and then, you know, lower different loads is going to proportionally increase further, and that's going to play more and more in our hands.
Some of the offshore deals that we have announced in Q2, for example, included a 900 ton heave compensated. By heave compensated mean that you are lowering 900 ton loads down to the seabed whilst you expect the sort of the loads to remain stable, whatever the conditions on the surface are, because these are quite high-technology systems. Effectively, you know, the people are ordering crane, and they just need a ship around that one to execute that one. We had four orders for 250 ton cranes as well as winches. The other thing is the winches and sort of the mooring and anchor equipment also for a capability to sort of remain at the place whilst you are doing this.
Lowering and lifting of the equipment is becoming more critical. Both in terms of the actual offshore exploration, we see that continuing strongly. Due to the changes in terms you actually do the exploration, that's probably going to further enhance the demand for the kind of equipment we are operating in. For the other questions, I turn to Eeva again.
You had a question on the Hatlapa, whether the EBITDA, EBITDA margin would be more in line with MacGregor's than the EBITDA. Yes, your assumption is correct due to the sort of high depreciation level mentioned by our CEO earlier in the questions. You had a question on the Kalmar cost overruns. If I understood the question right, what we want to say is that yes, we now have in the operational result included EUR 16 million cost overruns, which from our point of view are not restructuring costs. They are operational costs.
Mm-hmm.
They are included in the operational results. We obviously hope that those don't that we don't have similar ones in the future. As discussed earlier, this cannot be ruled out at this point. Our improvement targets as such are based on the numbers excluding that because of course you could sort of arrive at almost a EUR 20 million improvement from in 2014 just by not having those repeated. That would not really be much of a guidance for you. I think that's something you would expect anyway. Yes, that sort of EUR 40 million annualized run rate at the end of 2014 is coming from other areas.
Okay. Thank you.
Was that what you wanted to reconfirm?
Yeah. Thank you. That's fine. Very last question on the sales outlook. It's unchanged despite lower marine sales, what is the offsetting factor here? Have you implicitly lowered the sales guidance?
We kept the sales guidance same. I mean, we have seen a growth in revenue both in Kalmar and Hiab in the Q2, and we expect that to sort of hold in there.
On the sales line, obviously it's.
Yeah.
EUR 50 million change is not so material than it is on the operating profit due to the clearly higher profitability MacGregor compared to the other business, areas. It has a bigger effect there, which meant that we felt that it was appropriate to be a more specific on the operating profit guidance. Thank you.
Next question comes from the line of Sanna Kaje from FIM Bank. Please ask your question.
Yes. Hi, it's Sanna Kaje from FIM Bank. I was just wondering how you see Kalmar's competitiveness in the big projects in the future, as looking at the cost overruns, it seems that you took the project previously with too low prices?
That's probably true in terms of the... Or I would say that there we failed probably was the scoping of the project and to be quite precise in terms of what we are selling and what the customer is buying. I think our competitiveness in terms of integrated automated terminals from the technology point of view is extremely strong. Clearly, I think there our competitiveness has been at not at the level we would hope that to be was in the large cranes. There we have, of course, taken now the step or the measure to move that whole value chain, including the development, engineering and production into the joint venture into RCI in China. We expect that to improve our cost competitiveness in the, in the crane side.
In the actual sort of software automation side, as I said, we actually are very confident of our capabilities, and reposition position in there.
Okay, thanks.
Your next question comes from the line of Johan Ekström from ABG Sundal Collier. Please ask your question.
Hi. I just had some further questions on the savings, getting some clarification on how to think on a year-on-year basis, aiming for the EUR 40 million run rate by end of 2014. We already have significant savings materialized this year. Should you think, yeah, as you said, half of the EUR 40 million for next year on top of the current rate, or do you see sequential improvement also in the second half of this year?
Yes, you should think of it, the sort of 2014 improvement on top of what we achieve by the end of 2013. In the Kalmar case, if I understood right, your question was more on that. I think we're well on the way on the savings for 2013. Not necessarily from those a big further improvement in the second half, so to say. Obviously, we are expecting profitability improvement in Kalmar, hopefully through volume and more of a mix issue in order to reach our guidance as well.
If you're purely talking about the savings, I think we're the run rate is more flattish now. We are at a good rate, we just need to follow through the full year.
Okay. Could you also give some more details on, and concrete examples on what will drive this, as you say, it is clearly the savings that will generate this EUR 40 million. On top of that, you have these other issues not coming back, hopefully. It sounds quite significant, and I would just like to know a little bit more on what concrete actions will be made to reach this.
I'll take a few examples. We just announced a few weeks back our new reachstacker called Gloria in the TOC conference that is clearly a sort of next generation reachstacker, an important product for us. We have a significant market position and that will be very competitive in terms of functionality, very good reception from the customer, but also more very important from our point of view, from the cost of goods sold or from the designed cost perspective, also more competitive than the current model. Also, in terms of products like automatic stacking carrier, our designed cost has progressed there well.
We see opportunities to improve the profitability in a number of our services businesses, as we have said, just improving the performance and the processes and moving more from the labor-oriented services sales to the sort of really selling proper IP, and such as the crane refurbishing, projects that we have sort of, for example, announced in last week in Hong Kong. Also, the product mix will obviously play into our hands here. We see a good progress in the automation software integration, Navis, for example, happening at the moment.
Okay. Thank you.
Thanks.
The next question comes from the line of Jan Capała from Nordea. Please ask your question.
Hello, this is Jan Capała from Nordea. Just a little, an nitty-gritty question on the corporate cost line. You have EUR 6 million for the second quarter. That's a quite a good reduction from last year and also from the first quarter. What would be the going rate going forward?
Overall, we had a significant reduction and restructure happening in corporate. The sort of the EUR 30 million cost reduction, we indicated that that's of course a very important piece of that one. The what's driving then the other element there is the investments of course create the carve out of the MacGregor business and listing. That'll be in the neighborhood of EUR 7 million-EUR 10 million this year. We have not realized or we have realized less than half of that so far. I think what you will probably see is the sort of general costs going a bit further down, but then we will see some costing in the related to the listing of the MacGregor and the carve out related to that one.
Yeah, I would call that pretty. You would probably see that number overall being pretty stable.
Yeah. That would then be it on a, on a full year level to what we've roughly said previously that the corporate admin costs should be sort of some EUR 10 million lower than in 2012.
Okay. Thank you. That's all. Thank you.
There are no further questions at this time. Please continue.
Okay, thank you. Do we have any more questions here in Helsinki? If no, I would like to thank you all for your attention and wish you a nice end of the week. Thank you.
That does conclude our conference call today. Thank Thank you for participating. You may all disconnect.