Ladies and gentlemen, thank you for standing by, and welcome to the Cargotec Corporation Q1 2013 interim results conference. At this time, all telephone participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question over the telephone lines, you will need to press star followed by one on your telephone keypad. I would like to advise all telephone participants that this conference is being recorded today, on Friday the 26th of April, 2013 . I would now like to hand the conference over to your first speaker today, Paula Liimatta. Please go ahead.
Ladies and gentlemen, welcome to Cargotec's January-March 2013 conference call. My name is Paula Liimatta, and I'm the Head of Investor Relations. Today, we have a live audience here in Helsinki and also people on the phone lines. We will start with a presentation by our new CEO, Mika Vehviläinen, and CFO, Eeva Sipilä. After the presentation, we will begin the Q&A session. Mika, please.
Thank you, Paula, also from my behalf, very good morning and very warmly welcome to my first quarterly results announcement for Cargotec. Let's move ahead. Obviously, I'm now one month and 26 days roughly in the job, so, sort of still learning my way around here, but I'd probably like to share some of my observations towards the end of the presentation. We will run through this presentation together with Eeva. I will have some general comments in the beginning, then Eeva will dive a little bit more in detail into the numbers. I'll conclude with some remarks about our guidance and overall the focus areas for the Cargotec for 2013. If you look at the numbers, let's start with the positives.
We are happy with the development of our orders. They grew 7% year-on-year. MacGregor orders actually increased by 35% compared to the Q1 2012. Kalmar orders improved by eight percentage points. The disappointment for clearly for us was the decline in sales, 14%, that came almost solely from the MacGregor net sales decline by EUR 105 million. Hiab sales declined somewhat by EUR 10 million. If I look at then the MacGregor sales, I would say that there are two main reasons for that one. One was sort of expected, the other one was somewhat more unexpected. First of all, on the expected side, obviously the order book for the MacGregor due to the development in the shipping industry has been on the decline.
The order book in the Q4 2011 for MacGregor was EUR 1.3 billion, at the same time, end of last year, only EUR 886 million. Obviously that will drive down the sales development as well. The other issue that sort of hit the MacGregor sales decline in the Q1 2013 was that many of the customers, the shipyards, actually delayed the deliveries by effectively not opening letters of credit and such things. That then sort of hit the deliveries towards the end of the Q1 as well. Driven by the weak top line, the profitability obviously declined. Again, the main driver and almost the sole driver for the profitability decline was the top-line decline coming primarily again from the MacGregor side.
If I look at the decline in the operating profit, EUR 24 million, that's exactly the same decline as we saw in the absolute terms in MacGregor operating profit decline, also around EUR 24 million. Very much the sort of the poor results that we are not satisfied at all came from the declining top line of MacGregor that then drove down the whole group level results as well. The cash flow from the operations was positive at EUR 21.2 million, again, not at the level we would like that to see. Some of the advanced payments that were related to the positive order development on the Q1 did not materialize yet on the Q1.
Also because of the delay on some of the shipments and deliveries, as I indicated earlier, related to MacGregor, more net working capital was tied into inventories towards the end of the Q1, and that drove down the cash flow on that one. Again, same thing in more numbers. If I look at overall, the good news of course is that our order book development was a good one. Compared to the Q4 2012, where our order book was EUR 2.021 billion, we were up by almost EUR 200 million. The book-to-bill ratio in the Q1 was 1.17, which is of course a positive indicator for us. The operating profit obviously declined, as I already stated, from the Q1 last year.
Sequentially, that was slightly up from the Q4 2012. The, interestingly, net debt went down to EUR 500... Went up, sorry, of course, on EUR 506 million. That was primarily driven by the lower cash position. Again, Eeva will come back to that one in a detail. As well, earnings per share was impacted by the results as well of being only EUR 0.10 per share for the Q1. With that one, I'd like to hand over to Eeva, our CFO, and she will run through the numbers a bit more in detail.
Thank you, Mika. Going into slide five, here you see our quarterly order intake and sales development over a bit of a time. Obviously as Mika noted, we are satisfied with the order intake. We cleared almost 1.2 book-to-bill.
Gives us obviously confidence for the remaining year on what comes to the sales and also the results. This of course is needed looking at the slide on the right-hand picture on the right-hand side, as you have noted, we had a slow start for the year. We have some work ahead of us. Going into the segments a bit more in detail on MacGregor. Here the positive order intake comes very much from RoRo and offshore, also general cargo is, it was the third ship type. As you all know, the ship market as a whole in some of the other ship types continues to be somewhat challenging.
What's good to note in these numbers that we have excluded the bulk business which was transferred from MacGregor to Kalmar at the year-end, roughly EUR 55 million of sales in 2012. That also obviously is visible in the order intake numbers. This EUR 209 million is clearly highest order intake in quite a while. As Mika already pointed out, this the low volume in the sales was really the sole driver of the print in our report that we continue to expect better deliveries in the remaining year. We have indicated that approximately EUR 850 million of sales would be recorded as MacGregor revenue in 2013.
With that figure, with the margin of that business and also the fixed cost position we have, we still believe we can deliver the low double digits and large operating profit margin we have indicated earlier. As said, we obviously need the volume. At these low levels, even in a lean business like MacGregor, the fixed costs start to have their toll on the margin. Going into Kalmar. Here, good quarter as such, especially in the small equipment side, good demand and we also saw some pickup in activity in the bigger equipment. They didn't really materialize in orders.
Nevertheless, a good book-to-bill ratio here as well. Gives also us confidence on sales growing in the coming quarters. Also good progress in Kalmar when it comes to the sort of cost savings from the restructuring actions generated late last year. We are on track on the overhead side in the business. However, a slightly negative note was that the quarter was not fully clean of project overruns. We had roughly EUR 5 million of cost overruns in the quarter. Mainly, a single delivery in Africa, where we had significant logistical challenges on the delivery side.
Now that being behind, we look ahead on a slightly more positive note. Obviously that EUR 5 million burdened the reported numbers. Going into Hiab. As you all well know, Europe is mixed, and we see that also in the Hiab market, both in order intake and sales within Europe, the countries are showing very different environments. U.S. continue to be very healthy as we have reported on earlier. Orders were as a result of the development in Europe, down year-over-year, but also in Hiab, obviously a book-to-bill of more than 1 is a decent start for the year.
Profitability, on a low level. Here maybe one specific note that's partly burdened by sort of additional cost related to the fact that we were late, or it was a prolonged process on the personnel union negotiation side in Hudiksvall related to the sort of a change in the position of the Hudiksvall factory and vis-a-vis our Stargard Polish factory. That of course meant that we had overcapacity in the quarter in that factory, and those costs are visible in the results. The negotiations have now end of March been concluded, as we have announced. We now can continue and continue ahead.
Going into cash flow. Here, as Mika said, obviously we're happy to see a clear improvement last year, but not something we are satisfied with. We do need to get the volumes and inventories out to improve the net working capital and then show better cash flow for the group as a whole. Looking at services, over all the segments, on a total level, pretty much flat year-over-year. Especially challenging in MacGregor, where customers in Europe are on a cost saving mood due to the challenging market environment. Here it is, obviously puts pressure on the demand for us.
Kalmar, again, where capacity utilization of customers is clearly on a more positive note, was able to deliver a good growth number for the quarter. In these charts, you see quite well the change in where our business and sales come from. This is obviously no news for you. We've discussed this quite a few times over the past year and a half already. We see clearly that the share of MacGregor is decreasing and Kalmar is roughly half of Cargotec volumes. As the MacGregor share declines somewhat, it also means that the Asia Pacific share goes slightly down.
Nevertheless, we are satisfied with the mix of the and the geographical balance as such in the business. I think that pretty much concludes it for more detail in running in numbers. We can come back to any questions you have. I'd like to leave the floor back to Mika for concluding remarks.
Thank you, Eeva. First of all, regarding guidance, we keep the guidance same as we did in the end of last year. We still expect the sales to be slightly below 2012, and operating profit excluding restructuring costs to be at the 2012 level. Obviously, big driver here will be the revenues of the MacGregor. We now estimate MacGregor total year revenues to be roughly at EUR 850 million level. That will then obviously drive also the overall profitability level within the Cargotec as well. As I said, I've now been a little bit less than two months in the company, and obviously, I'm not happy with the results we have had. I think overall no one in Cargotec can be satisfied with the level of performance we have at the moment.
Cargotec has a lot of strengths. We have world-class brands, industry-leading brands in many of the areas. We have a very strong market position and market share in most of the key product areas. We are one of the most global players in respective field and have world-leading solutions and technologies, again, in most of the areas we operate as. There are a lot of strengths. However, we have not been able to turn those strengths into the value for our shareholders in the last few years, and that's clearly an improvement required in there. I would say very much the sort of the focus for this year is in around short-term execution. My initial sort of take on the situation in Cargotec is that we are focusing in roughly on the right things.
How are we doing on those things? I think we can always improve in terms of the speed and execution capabilities. We are sort of proceeding in the result improvement areas that have been already laid out there. Very clear, the cost structure is one of them. We have seen already in the Q1 numbers improvements on that one. We expect those improvements to remain there throughout the year. Obviously, you can always work on your costs further as well. Our portfolio when it comes to the products, markets, and customers still requires further cleanup. We need to be very focused on what we are doing, and they'll be very much focused on the profitable parts of our business as well.
The deliveries have been one issue for us. More and more of the Cargotec businesses in projects, they will be counted differently. They will be required to manage differently. Our capabilities in project execution and deliveries have been strengthened in the last six-eight months, and I see a lot of positive improvement in there. However, obviously, we have also taken a number of very large projects that are still waiting on our results and driving those through those projects will take most of this year and some parts of the early next year as well. The margin clearly is another area for us which we are not satisfied at the moment. We have in several product areas, we have product cost issues that we are working on there.
R&D will be an investment area for us as well. We are not going to save on that one significantly because that's required to drive down both the product competitiveness, but very much also the product cost in many of the key product areas we have there as well. Obviously, that should then drive operating profit on its part as well. With that one, I'd like to thank you for listening in or being here physically in Helsinki, and I think we open up for questions and answers.
Thank you, Mika and Eeva. We will start with your questions here in Helsinki now. Please.
Do you want to say more? It's, it is a big number of projects. In MacGregor, the size of the projects is not usually that big when we talk of the basic business. It is really a phenomenon we see in the industry. It is not related to any single customer or single project, as such.
Overall, if you look at the shipbuilding industry and the shipping business at the moment, there are still overcapacity. There are roughly 5 percentage points of the net tonnage of the fleet is still idle at the moment. However, there are sort of weak indicators at the moment in the market that the shipping demand will be coming back. Again, it's probably a bit too early to see. There are some sort of encouraging signals in terms of the sort of upturn hopefully happening. We hope that we will be bottomed out in terms of the demand there.
What is your estimation of this project? Is there a heightened risk for cancellations? How do you see that? Do you expect all of these to materialize in sales sooner or later?
We do expect them to materialize in sales. These are almost ready vessels. cancellation would certainly sort of be not have consequences to many others, not only us. we actually, we even in now in April, we've seen some better movement in the letter of credit opening. as said, we continue to be in that sense the same view on the full year sales.
Okay. financing is the maybe common denominator.
Financing, of course it is a question of a bit playing time in the chain when there is not necessarily a desperate need for the new vessels. It's in that sense, it kinda tends to have that maybe you push things month forward or two without sort of any sort of dramatic issues. Obviously there are sort of contractual issues coming at some point if you postpone there for longer than that.
One more question. For example, now in Sweden, in Hudiksvall, do you have an estimate for how much those type of extra costs will be this year?
What comes to Hudiksvall, the case is now closed. The negotiations are now done, we can now address the overcapacity situation there as planned. We are well on track with the other cost savings. In that sense, I don't, with the current sort of order intake and volume expectation, I wouldn't really foresee much of those in that would sort of be at least in any material way affecting this year. We have obviously some restructuring costs reported separately with, there will be some costs still coming on. We now had EUR 1.8 million for the first quarter. We do expect a slightly higher number for second quarter, nevertheless, in single millions.
Thank you.
Two questions. First about the Kalmar and the cost overruns in the projects. When can you be sure that those risks are over? Is it third quarter, or do we have to wait for the fourth quarter until we see that the risks are not materialized?
The overall, those large sort of, large projects that we have ongoing, are now tracking on target at the moment. The risk is sort of in two phases. One is actually related more into the mechanical engineering and project deliveries. I would say that we have passed the peak of that risk period at the moment. However, MacGregor and Kalmar is engaged in many of the leading automation projects in the world. Total, we have about 17 projects going on, and many of those automation projects are fully unmanned and sort of leading edge of the development at the moment. There are further risks in terms of the performance and deployment of that software and automation that will then materialize more towards the end of the year, early next year.
In that sense, again, at the moment, those projects and the development of the automation's evolutions is tracking on target.
Okay. Thank you. The second question also related to the risks. You are in the comments of risks, you mentioned this Rainbow-Cargotec Industries and how important it's for Kalmar's profitability in the future. Do you see that there are some new risks or uncertainties at the moment, and why do you mention it here specifically?
I don't think there is any specific, I mean, question. It's a new facility ramping up a new factory. Obviously, there's always certain risks involved in that one. Making sure that they get enough volume in there to make that profitable and drive down the cost there as well.
We did have that same risk and noted also in our annual report. It's not something that has now appeared.
Do you update the upwards timetable at the moment? When can we see some sales figures, for example, in this, from this joint venture?
Well, the facility is opened at year-end. It has been taking orders and is working on the manufacturing of those first orders. In that sense, we are so far on track. As Mika was saying, it's a big brand new facility and there's still a lot of work ahead of us, obviously, in the, to ensure the right learning curve in the ramp-up. In that sense, there's no change to what we said earlier this year. 2013 will very much be a ramp-up year from that point of view.
Thank you.
Yes. Hello. I know it's unfair to ask this when you've been in the job for a month and something, but given the time that you've spent with the company and looking at the guidance for 2013 and these figures, do you feel comfortable with that? There's always the question when a new CEO takes over that is there going to be a table cleaning kind of exercise? How would you comment that?
Well, as I said, we have kept our guidance unchanged. Obviously, when you look at the sort of steady state pace, there is a discrepancy between the Q1 numbers and rest of the year. That's very obvious. We have spent a fair amount of time looking at the numbers, looking at the forecast for the rest of the years, and we still feel comfortable with the guidance we are giving there. Obviously it's always clear when you have such a weak Q1 that your risk level will go up. Thank you.
Okay. If we don't have any more questions here in Helsinki, operator, please, we can start with the questions from participants on phone lines.
Thank you very much indeed. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star followed by one on your telephone keypad and wait for your name to be announced. It's the hash key to remove your question. Your first question comes from the line of Jürgen Zirener from HSBC. Please ask your question.
Good morning. A question to the Marine market development or order intake Q1 was relatively positive. Do you have any indication if that is continuing in terms of order intake for Q2? That would be the first question. The second question, you mentioned that still a lot of work has to be done in terms of cost improvements. Can you elaborate a little bit more about ideas or by when you can give more details in that regard? Maybe also on the planned partial listing of Marine. Is that a strategy also under review? That would be the last question. Thank you.
That was quite a number of questions. See if I get them all right. The first one was related to, I guess, the outlook on the MacGregor side and the order intake in there. We feel fairly comfortable with the situation at the moment. As I said, overall, there are increase in weak signals in the shipping industry. Overall, that the demand for the shipping, first of all, is on the increase, and that would then of course reflect positively on the shipbuilding hopefully as well. The shipbuilding prices are probably lower than they've been for quite a number of years, and that is potentially an opportunity that many of the operators would then seek to take advantage of. We will see.
Obviously, the offshore segment retains very strong demand there at the moment, and there are a number of opportunities that MacGregor has in the offshore segment as well that we feel quite comfortable and positive about. Again, you know, I think we are very happy with the order development on Q1 and we have no reason to believe that that would change for the rest of the year as well. Then the number two question was in terms of the cost structures. As I said, a fair amount of work has been done on the overheads on the corporate level as well as in the especially in the Kalmar side.
We have still a number of programs running in the Cargotec that are required to make this company more globally integrated operation with better control mechanisms that are related to SAP rollout, some of the other tool de-development, as well as then carving out and separating the different business areas from each other as an independent companies. That will then give, I think, more focus in, into the different businesses as well. These costs are between a minimum of EUR 7 million-EUR 10 million just for the MacGregor carve out on its own, and then you have on top of that one the SAP rollouts as well. There are a number of costs that are more temporary in their nature that we still expect to run throughout this year and part of the next year.
In many of the other areas, like in Hiab, I think the main issue is not so much the cost structure as such but the product margins and product cost area. The product cost area and product margin, including in pricing as well, is clearly an area that we need to be more focused on throughout this year as well. In terms of the listing of the MacGregor, we have now said that we expect the listing to happen earliest at the first half of 2014. The actual sort of physical or the technical carve-out will happen by the end of this year. We will have the technical capability to sort of spin out and list the MacGregor by the end of this year.
As we have said all along, the final listing decision depends on the market conditions that we will then review and follow up.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from the line of Tom Skoglund from Handelsbanken. Please ask your question.
Yes. This is Tom Skoglund from Handelsbanken in Helsinki. I would like to get an update on cost savings and the timing of how they should come into the numbers this year and also what's remaining for next year just on a rolling basis. My second question is the new CEO's view on the need for consolidation. We have seen quite dreadful numbers from most container port crane suppliers now in the last quarter, that suggests that consolidation is badly needed. What is your view?
Eva, would you like to take the-?
Yeah. If I start on the cost savings. You may remember we said earlier that we expect some EUR 30 million of cost savings during 2013, and we are well on track with that. We have roughly EUR 7 million cost savings in the first quarter, mainly in Kalmar and then some on the corporate costs, which you can see separately reported on. The otherwise activities are ongoing and then we are still comfortable with that EUR 30 million number for the full year.
We have not indicated the number for 2014 as such. Obviously as you may well remember, some of the cost savings actions relate to supply issues relate to Poland which will be ramped up during the second half of the year and hence obviously the run rate at the year end. Could be expected to be somewhat higher than the sort of outcome for 2013. I think we're more comfortable in coming back to that when we see a bit more months going and that we are surely on track.
Can I just clarify, if you guide for EUR 30 million of cost savings this year, does that mean that on a rolling basis you will reach like EUR 50 million by the end of this year compared to the end of 2012?
The rolling number will be higher than the 30. Yes, this 30 is sort of the number that will be visible in the 2013 numbers. Then what exactly the rolling number I'll leave that for you to estimate for the time being.
All right. Regarding consolidation, I think our focus very much at the moment is the operational improvement of each one of our business areas and rather than looking at them any strategic options at the moment. You're absolutely right that the performance in this business area has not been great across the industry at the moment. I mean, if I look at Kalmar, there are really issues related to the large crane projects and the deliveries of those ones. Also, as far as I understand, even the market leader, which is ZPMC on the large crane project, is recording losses on a continuous basis. One can of course ask about the health of the whole industry and how much the consolidation would help when the clear market leader is not able to make money on that one.
I do think that our focus very much will be in driving our leadership in the automation area and services as well. One has to remember that many of the parts of the Kalmar business today are already financially quite healthy and progress well, things like mobile equipment, et cetera.
Thank you.
Thank you. Your next question comes from the line of Antti Suttelin from Danske Bank. Please ask your question.
Thank you. This is Antti from Danske Bank. I would like to ask a question on MacGregor. Looking historically, before the China driven ship ordering boom started, MacGregor EBIT margin was clearly lower than 10%. Now that volume seem to be falling back again to the pre-China level. What's the difference now? Why shouldn't the margin fall back to under 10% now? Thank you.
The margin is very much driven by the volume as well. Of course there is a product mix issue always in terms of how much hardware versus engineering solutions you ship as well. A very, very clear driver there is the volumes. As we have said, we expect over throughout the year the MacGregor revenues to recover to be approximately at the level of EUR 850 million. With that one we still expect a double-digit number for the operating profit for MacGregor.
Maybe one point to add is that our market position, and the whole, our whole supply chain is in our view, clearly in better shape than it was some five, six years ago to in the years you referred to. I think, overall we've done quite a lot of good actions in the business during this, during this time.
Can you confirm that MacGregor gross margin is now higher than what it was in, say, 2007 and 2008? The reason for asking is that in 2008 you had a sales which was EUR 950 million, if I recall right, and EBIT margin was 8.5%, if I recall right. Lower than 10%.
Yes. As said, we, with a sort of, this year's sales estimate of EUR 850 million, we expect low double digits. Yes, it obviously on all lines, we need to be, we need to be better. We think we are.
obviously.
Thank you.
In terms of what sort of ships we are delivering solution to is changed quite fundamentally today. As we have indicated already, the container ship market remains relatively weak still today. We have seen clear demand emerging from RoRo ships with the globalization of auto industry, the Korean manufacturers, and I think in the future the Chinese manufacturers. The shipping of the cars will certainly be an, I think, growth area where the more RoRo ship capacity will be required. Good news for us is that in terms of the MacGregor related solutions, the sales per ship in the RoRo type of ship are considerably higher than they are in a standard cargo ships.
As said, the demand for that solutions, and we, sort of, announced a couple of wins on that one in the Q1 as well. Other interesting area, as I said again, we see the positive development in the offshore side as well.
Okay. Thank you.
Thank you. Your next question comes from Johan Eliason from SEB. Please ask your question.
Yeah. Hi, this is Johan at SEB. To just clarify the margin question I had on MacGregor there. One question about the IPO and the reason for delaying it. Is it because you're seeing a wobbly market right now or are there technical reasons why you need to delay the potential IPO?
It's technically we would have struggled to be ready, honestly on the second half today. The complexity of the carve-out, the size of the company and global reach of Cargotec is not a small feat as such. We still have a lot of work ahead of us. I mean, we have now just an indicator for you is that we have booked so far EUR 1 million for cost rate. That one we expect total cost for the whole year to be EUR 7 million-EUR 10 million. There's still a lot of work ahead of us. On that one. Obviously, also the market conditions, as I said, although there are positive indicators or weak signals at the moment, they are not yet there at the level I think we would be comfortable with proceeding with the IPO as well.
It's a combination of really, I would say, both factors.
This decision to separate the lease part of MacGregor was obviously taken before your time. What's your take on this? Does it make sense?
The drivers for the MacGregor listing clearly is that we believe that there is a further consolidation that will take place in the MacGregor space. We certainly would like to participate on that one. I think MacGregor has a very good long-term growth potential ahead of that one. We need to be able to finance that growth. The idea here obviously is that with the listing of the company, we generate both cash gen as well as a separate equity that can be both used as a tools then to do further M&A and drive the business both organically but also very much also inorganically. I still see a, like, sort of sense and good possibilities developing into that direction.
Okay, great. Thanks.
Thank you. Your next question comes from Janne Kåll from Nordea Bank. Please ask your question.
Hi, this is Janne Kåll from Nordea. Just a question on, I think we already touched this MacGregor orders. Just asking is the current orders that you're booking, would they be almost all for quite recently contracted new ships? Would the fact that shipbuilding order book or that the shipyards has been coming down, and would that play any role for you or has the orders for those ships ordered earlier, have they already been equipped with your products or would that play any role? Is everything now dependent on the next ships to be ordered?
Well, well, the certainly the orders we're now booking are to new delivery, new orders on the RoRo offshore side. These are sort of the equipment is quite complex from a sort of the load handling equipment. It is very much ordered very close to the sort of after the ship is ordered. In that sense, the answer to that part of your question is sort of existing backlog in shipyards. We don't see sort of in the old backlogness. I think most of those decisions have been made with some exceptions. I don't know if Mika can add.
It doesn't play. Okay, that's fine.
One view on that one as well is that the with the more complex deliveries like the RoRo ships and hopefully an increase in business in offshore side as well, your sales profile is somewhat changing to much more project-based. You actually start to apply POC accounting and some of these deliveries could then change the order versus sales profile somewhat from the current one.
Okay. I have a second question, if I may. On, just a reminder on, I mean, last time we spoke on this Kalmar situation that we originally had last year some EUR 300 million stock of these orders or problematic orders. Last time we spoke, you said that those would now be on your books at break even margin. Future shows what will happen and mean would that be adjusted well enough. Just now ask sort of an update on that particular part of your order book. Is that sort of caused more problems? With this Africa deal, would that have anything to do with that particular question that we discussed already or just an update on those, please?
The Africa deal had nothing to do with this large project. This is separate and a very particular issue related to logistic issues. We deliver very large equipment that does have to sort of remote and not particularly well-equipped ports. I think they underestimated the complexity of actually getting those things on shore on those ones, and that incurred some extra costs. On the last project, as I said in the beginning, we are now tracking on the estimates we have made for ourselves for this year. We feel that the mechanical delivery and project execution delivery part of the risks starts to be behind us. We still are many of these have a very large portion of automation technology in there. That technology and that performance risk is still there for some time.
Okay.
Answering your question on what the current number of the order book related to these orders. We are down from EUR 250 million we had at the year-end. We're now roughly at EUR 200 million, meaning that we have recognized in the first quarter revenue some EUR 50 million of sales from those projects. Some roughly EUR 200 million remain for the coming quarters of the year.
Okay. Thank you. That's all my questions.
Thank you. Your next question comes from Christer Magnergård from DNB. Please ask your question.
Hi, it's Krister from DNB. Four questions. Firstly, on the cost savings, you said EUR 7 million cost savings in Q1. Was that an annualized number or was that a year effect in Q1? Annualized would be EUR 28 million. Secondly, how much did the cost for the Hudiksvall plant cost in now in Q1? Thirdly, if you could give a more general pricing comment on the pricing environment for Kalmar and Hiab and their industries. Fourthly, you gave a quite clear guidance for marine in 2013 when it comes to sales and also on EBIT. Would be interesting to hear your thoughts about sales and EBIT development for the rest of the business as well, the two other divisions. Just hear your thoughts on that. Thanks.
Okay. If I take the first two questions. The cost saving number, that's EUR 7 million, that was a quarterly number. Yes, if you annualize that, you would reach the EUR 28 million you mentioned. We had a good start on that part. What comes to Hudiksvall costs, I would not want to give a very specific number. It obviously for us to mention it really was a million issue, but it wasn't very many millions. Hopefully that gives you some idea. You had the question on the pricing environment and then if we would like to elaborate on the guidance for Hiab and Kalmar this year.
The in pricing environment, as I said, one of the key issues clearly what I see here is the unsatisfactory product margins in many of the areas. This obviously need to be tackled in both directions. We need to work very hard on our product costs in some of the key areas we have. We also need to be, I think, more disciplined in our pricing as well. Generally, I would say still room for improvement in terms of how we price, how we market for many of these products into our customers. A development area clearly for us. Obviously, the market and the competitive environment is not easing up on any of these areas. That's a market environment you are facing in.
In terms of the overall guidance, we gave fairly specific guidance already in MacGregor. We have also seen that we expect Hiab sales to be somewhat below last year. Obviously when you put those two together, it means that the Kalmar business or revenue will increase again somewhat for this year as well.
Follow-up questions on that. First on the cost savings. You said EUR 28 million annualized now in Q1, and you have a target of EUR 30 million. At the same time you said that cost savings will probably be back end loaded in the second half. Doesn't this imply that you're gonna reach more than EUR 30 million in cost savings this year? Secondly, just on the market share, are you ready to give up market shares in any other divisions to get higher prices? That's the second follow-up.
Well, the first question on that, we have, we've guided on having EUR 30 million, and let's see if we can sort of do better. I would just as a note of warning that obviously some of the overhead related, which we're now mainly talking about whether effects coming in first quarter are personnel related and they come quite quickly. There are some other actions that are more cost of goods sold related to the production issues and hence they will be more back end loaded. Let's see where we are after the second quarter. I think it will be somewhat challenging to keep up this speed in the second quarter.
I still would repeat what we've said, that's back end loaded. Then, as said, obviously, hopefully we can land on a 30 - rather than 30 - level, but approximately 30 is what we've said.
The question market share was surprising, obviously quite difficult to answer when we operate in such many product areas. Businesses generally, I'm not a sort of a fan of giving up market share. That tends to be in the long term expensive than fighting for that one. I think the answer in most of our areas to make sure our products are competitive from the technology and capability point of view, but they do need to be competitive from the cost point of view for us to be able to answer that competition. I would make an exception probably around these large crane deliveries and others where the business and projects have been quite challenging for all the players.
Frankly, I struggle to sort of see the point of keep committing or engaging in the large projects that are clearly loss-making. I think we are going to show some sort of discipline around that area.
Very good. Thank you very much.
Thank you. Your next question comes from the line of Johan Ekblom from ABG. Please ask your question.
Yes. Hello. I just got a question regarding the credit issue for MacGregor. Is there a trend shift there or, what are you seeing ahead? You said that you will reach the targets, but at the same time you mentioned this as a risk. As we saw, I think Q1, what makes you believe that this will change in the coming quarters?
We are obviously tracking every order, every ship that is built around those orders and I would say have fairly good hand in terms of the market developments. Also, as I already said, we see weak indicators for the shipping industry and the market to turn around and see some positive development on that one. Overall, if I look at what's in the pipeline at the moment, the orders we have received and the projects that are ongoing, we feel really comfortable with EUR 850 million at the moment.
The risks I think is related to the same situation we experienced somewhat on the Q1, which was that even though we have ships ready to be effectively delivered, we are still not seeing the letters of credit open for those deliveries and shipyards are pushing back the orders and deliveries.
The risk obviously is that situation will continue throughout the year where we see continuous slippages, but obviously you then slip from one quarter or another, so that's kinda helping as well. There is a perhaps an expectation as well that with the changing sort of tone and the atmosphere in the shipping industry might see those slippages sort of not materializing at the same pace towards the end of the year as well.
Okay, thank you. Just a follow-up on cost savings, EUR 28 million annualized. Why don't we see it fully in the results this quarter? Can you help me understand what's driving that and how that will progress the coming quarters?
the Kalmar profitability, but then you have to take into account that the volume level there and also the roughly EUR 5 million of cost overruns in projects going in, taking the number to the other direction. I think it, in that sense also our earlier statement of being back-e nd l oaded for you to see the visible effect is the correct one because as always, any cost structure is then related to a certain more normalized level. First quarter volumes are not yet at the normalized level for this year in our view
As said, we have quite a good order in take and order book to deliver from here onwards.
Okay. Thank you.
Thank you. Once again, ladies and gentlemen, if you wish to ask a question, please press star followed by one on your telephone keypad and wait for your name to be announced. It's the hash key to remove your question. Your next question comes from Jürgen Seidl from HSBC. Please ask your question.
Yes, please, a follow-up question here on the Q1 cost savings, the EUR 7 million. Could you split that up between Kalmar and the corporate line? The EUR 8 million EBIT of the corporate line in Q1, is that a run rate we should use for the next quarters? Maybe also coming back to the cost savings program about the savings, can you update again on the costs that you expect for this year? How are you treating the costs here related to the preparation here of the IPO? Is it something you adjust for? Yeah, that would be the question. Thank you.
Okay. If I start from the second and third. Yes, roughly speaking, the corporate EUR 8 million for the quarter is a good proxy. It is in line with what we've said earlier, 30 something for the full year on corporate cost row. That is there. Related to the MacGregor separation costs, as they get, we didn't consider this EUR 1 million that material to sort of to make a separate note on it. We'll obviously keep you updated on the progress of that. We will book them in the corporate cost as such and then indicate the number where a number for you separately so you can follow that up on.
Now sorry, I lost your first question. Can you please repeat that?
On the costs related to the cost savings program, what do we have to expect exactly, for the measures?
Oh, yeah. Sorry. Yeah. We, so we expect this for the full year, this approximately EUR 30 million, and from, of the EUR 7 million, clearly bigger part, roughly EUR 5 million from Kalmar and the rest on corporate, and nothing really meaningful yet in Hiab or MacGregor.
Yeah. Also to come back, the costs you have to implement the measures, the cost saving measures, what do we still have to expect? The difference between your adjusted EBIT and the reported EBIT, what is there the budget or what you see there as costs?
Well, this visibility on the second quarter is maybe the best we would, I would guide on some EUR 5 million for that quarter. We had somewhat less in the first quarter. You may remember what we discussed it at the year-end. We had somewhat less in the first quarter. Some was postponed to the second quarter. The overall magnitude hasn't really changed. Then maybe some tails in third and fourth, but this.
Mm-hmm.
Nothing really material, Something not fully clear yet. Sort of if there would be anything material, we would then provide you an update on that. As said, do expect a bit more in the second quarter than what materialized in the first.
Okay. Thank you.
Thank you. Your next question comes from the line of Annette Sjölander from Deutsche Bank. Please ask your question.
Hi, it's Annette from Deutsche. Can you please comment on the current gross margin in the order book across the segments?
Well, gross gross margin for the quarter on a Cargotec level was obviously on the low side. We need that to improve to reach our guidance, and that applies for all three segments. In that sense, you can read that as saying that the order book gross margin on average is better than the first quarter achievement.
Okay. What about then on a year-on-year level? Has it been improving or?
I think overall the, we're quite pleased with the order intake received. As said, it's a pretty stable mix of, not any one single mega project. It's more sort of across both in Kalmar and MacGregor, and that obviously tends usually to support gross margin levels as well. Of course, the final test is always when you deliver, but as said, kind of, you know, taking the business, we obviously have been, aware of the fact that where we are and where we need to be.
Okay, thanks. Can you also comment a bit on the problems that you've had with these automation deliveries in Kalmar?
Well, in the first quarter, we did not have any problems related to the automation issues. As our CEO was saying, we're actually on track with those. We also did obviously mention that of course, we still are work in progress in them, but so far the start of the year has been as planned for them. Really the cost over, as I said, relate to more a logistic issue in a specific ship-to-shore crane delivery, which has nothing to do with automation.
Yes, before, just like, where have the problems been in automation deliveries then? Just to understand it better.
I have, although new in the business, I'd say I have fairly extensive background in project business from my time in Nokia Siemens Networks. I think the capabilities and experience in Kalmar a year ago, a year and a half ago, when this started, was not at the level you require for a project business in terms of having the right caliber of project management, having the tools, systems, and the experience to support large scale delivery projects.
I have reviewed that quite in detail myself now with the project directors and feel fairly confident that the capabilities that the people we now have in place, they know their stuff, they have the right tools and experience and in terms of project capability maturity, we have advanced quite a lot in the last 12 to 18 months.
Okay, thank you.
Thank you. Once again, ladies and gentlemen, as a final reminder, if you wish to ask a question, please press star followed by one on your telephone keypad now. We have no further questions coming through. Please continue.
Thank you, operator. Do we have any more questions in Helsinki? Okay.
You announced very good orders for the first quarter for both MacGregor and Kalmar. Can you comment how the second quarter has started, and what do you see in terms of order levels for the second quarter? Should we assume that maybe there were relatively good orders booked for first quarter, or should we assume that there's even higher levels to come in the next quarters?
Well, it depends where you compare. I think overall we are fairly happy how the quarter has started and we see progress in many areas. If I remember last year it was a very high order intake, whether we are able to reach that one, I think is a question mark, perhaps not, but sequentially, otherwise, I think we see a good progress at the moment.
You may remember we had a big Kalmar more than EUR 100 million single order included in the 2Q 2012, that's maybe good to take a note.
Okay. Thank you. If we don't have any more questions here in Helsinki or people on the phone lines, we are ready to conclude and we would like to thank you for your attention today. Thank you.
Thank you.
Thank you.