Good morning, ladies and gentlemen, and welcome to Cargotec's January-March conference call. We have today a small live audience here in Helsinki and a little bit more people on the phone lines. As earlier, we will have a presentation by our President and CEO, Mikael Mäkinen. After that we will have time to take your questions. We will start with the presentation. Mikael, please.
Thank you. Welcome everybody. I'll spend 15- 20 minutes presentation. After that, we'll take some questions and answers. January-March was actually an excellent quarter. The market grew in all segments and all geographies. Order intake grew by 37%. The operating profit increased to 6.6%. Yes, 6.6% is not our target. No, we are aiming for the 10% as we said before, but it's a good development. Cash flow was also strong, although the working capital increased, as you will see later. That's because of the volume. Volumes are going up, it ties capital. We also closed the Navis acquisition, which is a very important part of the development of the new Cargotec. Market environment.
As I said, the market has picked up in all segments and all geographies. If you look at the load handling equipment, it developed positively in loader cranes, truck-mounted forklifts, and tail lifts. Are there any areas where we have not seen growth? Yes, there is one area, one segment, and that's construction-related equipment in Americas, which is not a surprise. That's of course offset by a fast development in other markets. Very happy about that. Containers are now, based on the information that we have also from the beginning of the year, we know that the container volumes are now at a record high level, and they seem to further grow as well. Good development here. Especially on the rubber-tired gantry cranes, it was very strong.
We see a lot of customers buying four, six, eight, 10, 12 of those equipments, adding capacity to their existing terminals. At the same time, we see the number, as I explained during last quarter, of big projects still being around 10- 12 big projects worldwide. Difficult to say when they will materialize. There's a lot of activity around that as well. Marine. Surprisingly strong, I would say. We saw slight slowing down in the bulk carriers. Still good at the first quarter. See it going down. On the other hand, a lot of interesting container vessel projects and special vessels projects. Service continues to grow. It has been slow, as you will see later, but now we see a number of refurbishment and modernization projects. Looking at the figures.
Orders received EUR 819 million. Good figure. Very good figure for a first quarter. Sales EUR 763 million. We managed to pick up the volumes fairly well at the beginning of the year, giving an operating profit of EUR 50.6 million. Very good figure for a first quarter, giving us an operating profit of 6.6% compared to 2.4% one year ago. Cash flow, as I said, I'll come back to that a bit later. Interest bearing debt, EUR 335 million. A good figure, giving an earnings per share of EUR 0.59. Industrial and Terminal, I said earlier, grew 29% year-on-year, 60% quarter-on-quarter. Of course, especially on the industrial side, a very European or EMEA type of business.
On the other hand, the strong growth is now in Asia, and we are well equipped for answering to that growth. Marine order intake continued healthy. No surprise that 70% of the orders come from Asia. Bulk was strong at the beginning of the quarter. Now, as I said, it's more container vessels. That's where I see the growth for the coming. I see a fairly good order intake for the coming quarters as well in Marine based on the fact that the new ship types, container vessels, are very much in demand at the moment. Same development I can see on Industrial and Terminal. Good development for the coming quarters. Sales grew by 41% in Industrial and Terminal, 34% year-on-year in Marine. Good development here again. Very happy with that.
Operating margin, Industrial and Terminal, 4.7%. Good number for the first quarter. Sales was a bit lower than the previous quarter. The EBIT went up a bit. I'll come back to that when we talk about the forecast for the full year. Marine profitability remains strong. We have been guiding that it will be a double-digit margin profitability for the foreseeable future. It was going down last year. We have been able to pick up a bit more, but the long-term target is to be above 10, somewhere between 10 and 12, as I've said before. Now we are actually enjoying a fairly good market, and that means that we can keep the profitability on a good level.
Gross profit, we get a question about the gross profit going down. This is of course a question of mix. It's also a question of the fact that we see some component increases, we see some inflation creeping in. We have increased the prices. The price increases cannot yet be seen in quarter one in this. It should turn in the following quarters. Nothing to be worried about. On the other hand, as we will say in the outlook, that one worrying is inflation and components availability, component prices. Cash flow remains strong. Net working capital increased, as I said earlier, and that's very natural due to the increased volumes. We tie more capital, we have to take in more components. We have more goods in transit, we have more work in progress.
Service sales. Service sales has not grown as fast as I had hoped it to grow. That's a fairly flat development. It increased, yes, I would have liked it to increase faster. I think that what has happened in the world is that in many industries, people after the recession are more cautious. They use their equipment a bit longer between overhaul. They are more cautious when they change the spare parts and so on. I think that easy service in our business is not as easy as before. Is it a big worry? No. As I've always said, profitability on equipment, profitability on products is as important as profitability on service.
We will never allow profitability on our products to go down just by having the, in my opinion, wrong thought that we will then gain it back through service and spare parts. No, we will treat them separately, and they have to be profitable, both parts. Earnings per share, as I said earlier, yes, EUR 0.59 is a good figure for the first quarter. Geographical chains, not very dramatic. We can see a slow movement from EMEA towards Asia. That's an ongoing trend, and that's part of our strategy also is to be less dependent on EMEA and move more of our sales force, focus more on the emerging markets, which is then EMEA. These days also, I must say, Africa and South America. Navis acquisition. We finalized the acquisition.
We took in the first quarter a transaction cost of EUR 1.8 million. Those are the costs related to acquiring Navis. In addition to that, you have to remember that our preliminary purchase price allocation calculation show that we will have an annual depreciation cost of approximately EUR 5 million for a multiple of years. Something that is new to us is of course the deferred revenue on acquisition. The deferred revenue adjustment is a typical phenomenon that you have in software companies, that will decrease our post-acquisition sales for slightly over a year, and it's estimated to be around EUR 10 million. That means that the Navis will have a limited impact on our consolidated sales and profitability in 2011. This doesn't mean that Navis is not profitable.
It's a very profitable company. As you saw when we announced the purchasing price of the company. Due to the IFRS rules, this will not have an impact on our a very small impact on our consolidated sales and profitability in 2011. It will then kick in 2012. After that there will be only the purchase price allocation to be calculated in, which I said was around EUR 5 million per year. Strategic focus area, this is the same picture as you have seen before. Are there any developments since we met last time? Yes, there are. Are there any big developments that could be announced today? No. There are still customers and customer segments. We are working on the segments. We are developing the segments.
This was a typical acquisition where we strengthen our Ports and Terminal segment. Emerging market, I've said that we have to have a good position in the Chinese market within 2011. That's still valid. We are working on it. There's nothing new to announce today, I'm definite that we will have things to announce on that side as well during the year. Development in other growth markets, as I said, Africa starts to be a very interesting market. India, Brazil, Russia, Indonesia, Turkey, and so on. We are working on all those markets as well. Services, as I've said, spare parts logistics, very important. Gives fruit towards the end of this year, next year, that we have a very, very efficient way of distributing our spares. Internal clarity, our biggest project, our ERP project, has started very well.
The pilot is going well. Now we are starting the rollout phase. This is a huge project, you have to remember that. Multi-year project. Major part will be handled within three years. The full project maybe takes five-six years. We are talking about a big investment here. We believe that that's a must for a modern company to be able to reach high profitability figures. Last but not least, of course, the ERP project ties not only capital, but a number of people. We are employing a number of people who are working on this three-five years assignment of rolling out the ERP project. Another thing that you have to remember when you look at the personnel figures and the increases is, of course, that.
In those figures that you see end of quarter one, there are the figures for the Navis employees as well. Key priorities, I think I went through them just on the previous page. The growing demand requires a lot from especially our sourcing. We have quite a flexible system. We have very modern, good factories. They can produce or assemble our products good. Are we able to get in all the components on time? We already today see that some of the components, the delivery times are getting longer. The rubber price is getting up very fast. That means that the tires are getting more expensive. Hydraulic components, hydraulic pumps, hydraulic cylinders, delivery times are going up. In my opinion, that's the first step before the prices starts to go up.
puts a huge pressure on our sourcing department. Look at the right suppliers, make long-term agreements, safeguard that we get the components on time at the right price. Also, give the feedback to the salespeople, "Hey, here we have to increase the prices. There's a huge pressure on costs here," and so on. Service growth, I've already said earlier, customer segments, nothing new to announce. Chinese market, as I said, our position there, and the ERP project. Taking all this to consideration and looking at the healthy order intake in Q1, we have refined our guidance for 2011, say that we estimate that we will grow approximately 20%. We are more bullish than when we met last time. We see a recovery in all markets.
We see very interesting growth areas, and we have, of course, done the efficiency improvement, and they start to kick in now. On the negative side, there is a cost pressure on the market. Inflation, components, how much can you pass on to the end customer? Last but not least, we have also refined our operating margin guidance to say that it's approximately 7%. That's the best we can give today or the clearest figure, bearing in mind what I said here earlier. It takes us well on our way towards our long-term target. Okay, I think that's the last slide. Thank you very much. Now it's time for questions.
Yes. If there are any questions in the live audience, we can start with them. No? No, no questions here. This time we can take the questions from the people on the phone lines. Operator, please.
Thank you. Ladies and gentlemen, if you do wish to register a question, please press star one on your telephone. To cancel your question, it's the hash or pound key.
I think so.
Our first question comes from the line of Johan Eliason. Please go ahead, and announce your company.
Hi, this is Johan Eliason, Cheuvreux in Stockholm. Obviously a very good growth outlook you're giving now, expecting top line to grow 20%. The margin of 7% is absolutely for sure better than last year. If I look at the kind of drop-through rate, it kind of implies that on the additional sales, you're only expecting a drop-through rate of 15%-20% or so. We have seen a number of companies reporting drop-through rates between 75% to more than 100% as the first growth comes through. Why is this different from you? I understand the marine is impacting this for sure. Still it looks quite modest, especially considering all the cost savings you have been undertaking in the industrial and terminal division.
Yes. Thank you very much for the question. Of course, we would like the drop-through to be much higher. As I said earlier, there is I think that there is a very big cost pressure right now. Maybe this is a bit cautious, but we wanted to give a guidance that we in any market condition feel that we can fulfill. Second thing is, of course, that you have to remember that as you said, there's a marine part of it. There's also within industrial and terminal, of course, the drop-through, the operational leverage is much higher on industrial, but now starts to kick in also big port projects which have a different which changes the picture again. That's why.
Uh-
...it's a very complicated picture.
Yeah. Okay. And, just one question on the demand here. You talk in Americas that the only the construction related customer is still at a low level. How does it look in Europe on the construction side?
it's, it looks good. It looks good on the north and the further south you go, the worse it gets. If you look at South Europe, then it's at a low level.
Yeah. Excellent. Finally, can you say anything about the competitive picture out there? Has it changed since the last peak, so to say? Have the Chinese become more aggressive on the Ship to shore, et cetera, et cetera?
Maybe not on. Yes and no. I mean, of course, the Chinese are. When you talk about simple big cranes, then, when it's only a question of low cost can you weld and manufacture a huge crane, then, of course, the Chinese are very competitive, and that hasn't changed. On the smaller equipment, let's say the mobile equipment in ports, I would say that we see more new Chinese competitors coming in. Will it change the picture? I think it's too early to say, because we have also seen the Chinese way of working is that they develop a lot of new products, they test the products, they sell a few of them, and then they disappear from the market.
It's difficult to say, but if you take a medium term, definitely there will be one or two Chinese players that will be on one of the top players in the market. Yes.
Okay. Thank you very much.
Thank you.
Our next question comes from the line of Sebastian Ubert. Please go ahead and announce your company.
Good morning. It's Sebastian here from UBS. Just one quick question regarding your guidance, that 7% EBIT margin target. Do I correctly understand that this does not include the PPA or is it including PPA so that it's post that EUR 5 million charges? Thank you.
You can go to it.
Yes, good morning, Sebastian. This is Eeva Sipilä. The guidance includes everything. It does include also the PPA depreciation. It is kind of the really reported EBIT we are talking about to hopefully make your life and our life a bit more simple.
Okay. Thank you. Maybe one follow-up question. Can you remind us on the PPA you still have at the MacGregor division? Thank you.
Well, we haven't reported PPAs in the two segments separately, but overall from the previous years, we have roughly EUR 2 million of PPA coming through still this year. On that you should add what our President and CEO said on Navis, approximately EUR 5 million.
Thank you. Our next question comes from the line of Sasu Ristimäki. Please go ahead and announce your company.
Could you just please elaborate a little bit on the structure of the order intake in Industrial and Terminal in terms of what are you seeing in lift trucks, port equipment, and then the truck mounted business? Thank you.
Do you want to take it, or shall I? Okay. Industrial and Terminal order intake, are you talking about what we have seen or what we see going forward? I could not get your-
kind of, both, I suppose, in terms of what has been driving the order number in the first quarter.
Yeah.
You had a very big, nice order figure there, just to get an understanding of where the demand is coming from. Just in terms of outlook for the next, let's say six months or so, where do you think the kind of incremental growth will come from? Which parts are accelerating, maybe decelerating and so on?
Yeah. If you look at the quarter one, it comes from both Industrial and Terminal sides. Both of them have been growing and at almost the same pace. If you then go forward, of course we see a healthy order intake in the coming quarters and that will be then, as I said, there's a number of big port projects. When they start kicking in, then it will move more towards the terminal side from the industrial side. The balance. That's how I see the coming six months.
Is there a big profitability difference between how those two sides are evolving at the moment? Or are both markets pretty much, how to say, equally attractive for you?
The, it's not only the market profitability, it's also the products. You have to look at it product by product. Of course, industrial, as I said, has a higher operational leverage. Bringing up the industrial part has a quicker impact on the profitability. While on the terminal side, it's really a question of what type of equipment you have. If you have a mix of very big cranes, they normally have a lower profitability than the smaller terminal equipment. It's again, a question of what type of equipment do you have within the terminal side.
Okay. Thank you very much.
Thanks.
Once again, it's star one to register a question and the hash or pound key to cancel. Our next question comes from the line of Antti Suttelin. Please go ahead and announce your company.
Hello, this is Antti from Okay. Thank you.
We currently have no further questions from the phones.
Okay. Do we have any more questions? No? I think I would like to thank all the participant and wish you a good day. Thank you.