Good morning, ladies and gentlemen, welcome to the Cargotec Corporation Q3 2010 interim report conference call. At this time, all participants are in the listen only mode until we conduct a question and answer session. If you later wish to ask a question, you can press star followed by one on your telephone keypad to register your question, then it's the hash or pound key to cancel. I would now like to hand over to Paula Liimatta.
Good morning, ladies and gentlemen. Welcome to listen to Cargotec's January - September earnings call. We have live audience here in Helsinki and also people on the phone lines. We also have two cameras here in the auditorium in Helsinki or three cameras, but we are not going to use them, so please be relaxed. We will start with the presentation by our President and CEO, Mikael Mäkinen, and after that, we will have time for your questions. We will start the Q&A session from the questions from the audience here in Helsinki, and then we take the questions from the people on the phone lines. We are ready to start. Please Mikael.
Okay. Thank you. Welcome, everybody. I have here with me a few persons from our staff. We have Patrick here and Tina. Eva, our CFO, is not here. She's on maternity leave. I think it's one of the first days now, so. I think that the three of us will be able to answer your possible questions. Let's have a look at the January-September report. Let's talk about Q3. What's good, what's bad in Q3? I must say that I'm very happy with the order intake. I will come back to that. I'm also extremely happy with the performance of the company in Q3.
I mean, the performance in Q3, I'm not happy with the end result of that meaning that I don't think that this is the highest level we will reach. On our journey towards a better company, a better result, this was, in my opinion, a milestone that we can show that INT is going the right direction. Let's come back to that. What I would like to do is to start this presentation, strangely enough, with a picture that many of you have seen during our capital markets day. Why am I talking about this? Is that I think that this quarter shows that we are really changing the path of the company. We were struggling during the more difficult times.
We were struggling. We were having our One Company projects, trying to drive out efficiency of the company, maybe not focusing enough on the outside world. Here we are now clearly saying that from here onwards, it's a customer focus globally that is our main aim. There are many things we have to do. I will show you later. This is not a perfect company, but I think that we have reached one level. We have sorted out those very difficult issues that we had, made a very. I would say that this, we are building a house and we have made the foundation. That's what we have done. Now we can start building the house. I tried to show on this picture that it's a long journey.
We have said here that the segmentation will really kick in only after 2015. We are well on the way. For those of you who remember, we were talking about the 4 strategic focus areas for the coming years: customers, service, emerging markets, internal clarity. What does it mean? Customer and customer segments. It means that we are going to go through all our products from a customer point of view. Which are the products that we should invest in? Are there segments, products that we should divest? For that, we need an even better knowledge of our customers, really what the customer needs are. Emerging markets, of course, as I've said earlier, China is the must-win battle. You have to succeed in China. It's.
I would say in our type of or any type of global industry, if you don't succeed one way or another in China, you will be marginalized over the time. Yes, there are very many other important markets: India, Russia, Indonesia, Africa. Extremely important markets. I would say that China is a must-win battle if you want to be a market leader in any kind of industry. Acquisitions, partnerships, organic growth. That's the way to go into these markets. Why have I put this in this order: acquisitions, partnerships, organic growth? I really believe that that's if you would find the perfect acquisition target, that would be the best way to go. Second best is partnerships. Organic growth you have to do all the time, but it's, in my opinion, it's a too slow path. Service.
Two first bullet points talking about efficiency, spare parts logistics, distribution centers, extremely important for getting the base even better in service. The second two bullet points, to grow up in the value chain, to support customers' operation outsourcing, which is a very, very big step. It's very easy to say that someone outsource, yes, we will take it. It's a very risky path. You have to know exactly which way to go there. Internal clarity, we are working very much on processes. Based on that, we are building up a new ERP system to harmonize all the information systems. That's also a long, long journey. It takes, I don't know, three to five years to have, from that point of view, a perfect company. I would say that if you don't have that foundation, you will never be a world-class company.
A world-class company is a company that has operating profit on exceeding 10%. You cannot go over that if you don't have extremely good IT system and platform. Further development of the IT organization, also extremely important. You heard something about that last time. Oops, sorry. I've taken a picture here about what is customer segmentation, because we very often get this question. You are going to look at it from customer segment point of view. What are these segments? What are you going to do with them? We are going to classify them in like traffic lights, green, yellow, and red. You don't see any concrete names here that we are going to invest in that or divest that one. That's an ongoing, our ongoing journey.
What I try to say on this picture is that this is the way we are going to analyze it. Typically, industrial or old Hiab is not a segment. It's a combination of products. Inter-urban distribution, waste management, military, they are segments. Sometimes people make the wrong conclusion that. We get the question, "Are you going to divest Hiab, Kalmar or MacGregor?" No, that's not the answer. The answer is that we are going to go into segments. We are most probably going to divest certain products, and we are going to invest heavily in some of the products where we feel that we can be the market leader, world market leader. Then there will be products in between where we will harvest. They will be the cash cows, maybe not so much R&D.
We will go through distributors and so on. I hope that we will, or we will use this picture in the coming presentations. Slowly you will see also products, companies being added to this list. This is only still the theoretical background of it. I would say that this is actually the big step for the company forward, changing it from what we were, having built the base. We take the next step, building it into a customer segmentation company. Financial targets, you have all seen. We have not changed that. We announced it after the strategy work and after the board meeting that our next step financial targets are the same that they were already 2007, came the recession.
Gearing is far below 50, it's over the cycle. As I told you earlier, to be the market leader, we have to make acquisitions. We are all the time looking at companies to acquire in certain segments. Sales grow 10%, dividend, operating profit margin, as earlier. Let's go into the highlights of January, September. As said, market recovered in all segments. Order intake in Q3 was 56% up year-on-year. I must say that this is an extremely good figure, taking into consideration that industrial, part of industrial and terminal really had two summer months, which are always lower. From that point of view, extremely good. Sales also 40% up. There you can also see the seasonality. That a good figure. Last but not least, industrial and terminals profitability improvement.
This is something that we have been waiting for. We are building, we have built the factories, we are building up the production volumes, now we can see that it has a positive impact. It was a theoretical calculation until we also can really see that, hey, it works exactly as according to our expectations. Marine profitability, I will come back to that a bit later. Cash flow continued healthy. We are still working on cash flow. It was a bit easier last year because you had so much that you could take out and have a positive cash flow. I mean, this year it's really on a good level, I must say that I'm very happy with that. Slide number 10 is a busy slide.
I'm not going to go through all of it, but market environment, I must say that on the load handling side, a very interesting comment is here on the, on the first bullet point, last sentence, "The Americas have seen the most powerful recovery." This is very extremely interesting in my view. Remember that Americas was the first one. If you remember, November 2008 when the market just collapsed in U.S. It just collapsed. You remember I've been telling you that there was one month when we went from 3,000 loader cranes to three in order intake. Now we have seen a remarkable recovery in that market. Container handling, a few quarters we have already said the project amount is increasing. It's still increasing. This is a very interesting situation. One day it will.
either they will be ordered or they will disappear. It's an extremely interesting situation right now. I've actually not seen it before that it's piling up new projects, big projects, and nobody makes a decision. What does it mean? I don't know. I believe that what will happen is that the first one will be ordered. Okay, we get ordered, someone else get ordered, I don't know. After that, the competition will start to, not our competition, but the competition to the one that orders the first one will really be, "Hey, we also have to make this now. Now we have to order, otherwise we are late." Marine market, still good. Bulk carriers, containers coming back. Container ships now are a bit different from the container ships that were ordered four years ago.
They are slower. The average speed of container ships have gone down, which means that you make them a bit bigger. With the same engine power, you can transport 10-15% more containers. That's why you see orders coming in a bit more than one would expect. Service, clear improvement. Not a huge surge on service. There's still uncertainty in the market, but service is picking up. Sometimes I must say that people overestimate the importance of service for companies. I would say that the world-class companies, they are always very, very good at also producing products. You cannot. It's not so that the one who has the highest percentage of service in of their revenue, that they are the best companies.
I would say that the world-class companies, they always are driving extremely good profitability also on products, not only on service. I think that's something to keep in mind, that there is a balance. Looking at the key figures, of course, you have seen all of this. Operating profit, EUR 43 million. Good figure, 6.7%. Very good. Interest-bearing debt going down to EUR 64 million now. Earnings per share, EUR 0.38. As I said, orders on a good level. If you look at the different businesses, let's start with Industrial and Terminal. Orders grew by 40% year-over-year. Strongest growth in Industrial and Terminal. I remember I told you that Industrial, the strongest growth was in Americas. If we take the whole Industrial and Terminal, then the strongest growth is in APAC.
There's also a mentioning here about 55% of the orders still coming from EMEA. Although Asia is growing, Americas is growing, this is for us still a very much half of it is EMEA-based. If you take the seasonality, add it to this 3.389, I would say that we are on a very, very good path. Marine, again, strong, and a big number of projects in the pipeline. It means that the peak of marine revenue is actually postponed to next year, and we will still have a number of good quarters ahead of us, even with this order book that we have. Bearing in mind that 85% of marine's orders came from Asia. It's a totally Asian-dominated business.
This could turn in a very interesting position. There are not many companies in Europe where 85% of their order intakes comes from Asia. I must say that this is a strength that we have not utilized in INT well enough, but now we are moving people from marine to INT and so on. This must be one of those companies that are the best performance in Europe in how to perform in Asia, the marine part. Extremely happy with that. We have very few expats there. We have built up a local management taking care of that business. The business model, as we have discussed earlier, is good. Extremely happy with this business. Sales grew by 50% in terminals and industrial terminal and 12% on marine. Also a good figure.
Operating margin for industrial and terminal. This was really, I must say that, this was really the acid test. Can we bring it back to the right track? Yes, we were. We have been able to do that. Long work, many years of struggling. Now it's on the right path. As I said earlier, 4.2%, am I happy with that? I'm happy with the curve. I'm not happy with the 4.2%, no. Marine, for a number of quarters, we have said that, hey, we had a extremely strong order book during the real boom, that will one day end. Now you can see that there it has turned the other direction. We have also said that we don't see any reason with the big order book for it to be less than double digit.
It will be on a good level, it will not be on the Q2 level. Extremely happy with this performance, I must say. Gross profit, we also get the questions about the gross profit. It came down now a bit, it's a mix of product mix. Nothing that worries me. I was much more worried about the curve going down and down us bringing it up now. Small variations, nothing to worry about. Cash flow, said net working capital decreased to EUR 89 million. Good performance, EUR 66 million cash flow. Service, slightly positive. Increased order intake on service. I think that this is. I don't think we have lost market share or anything in service.
It's more our customers that are much more cost conscious than before. They see that how long can they run their equipment before doing service and so on. Earnings per share, pure mathematics. Extremely good bounce back from what it was. Now, for the whole group, EMEA and APAC are equal in size by sales. Again, if you remember already when I came, that was one of the ideas that we have to get more balanced. In my opinion, the Americas is still too small, but we are working on that as well. We should have three almost equal size geographical segments. Key priorities.
Okay, we are already towards the end of 2010, but just to remind you that they are preparing for a growth strategy, as I said earlier, going into the segment, by far the market leader in those segments that we choose. Focus on research and development. We have many new products coming out, environmentally friendly products, totally new type of products. Service concept, I was talking about that a bit earlier. Of course we still have this ongoing that will go on forever, efficiency targets, how to be more efficient, what can you do better, how can you, how can you get more out of this machine? We actually reduced, when we did the One Company, we reduced by two layers the organization. Is there still one layer that we could take out?
Maybe not today, but when we have the processes ready, most probably yes. We have mapped about 70% of the processes now, so we are well on the way there. That's a must for the ERP system to have, to have processes. Outlook, we gave a new guidance of the outlook, EUR 120 million-EUR 130 million, including one-time restructuring costs. Of course, based on where we are today, I will most probably get the question that, "Hey, isn't this too low? Why have you given a guidance like that?" There are some uncertainties. There is of course I mean, I must say the biggest uncertainty is actually that are we sure that the marine customers open their LCs in November, December, or will they postpone it to next year?
That will have an effect on this figure. I'm not at all worried about the lower range on that we wouldn't reach 120. It's then a question of where are we? Are we close to the 130? Are we just above it, just below it? That remains to be seen. That's where we are.
All right. Thank you, Mikael.
Thank you.
Now we are ready for the questions. Let's start with the ones here in Helsinki. Please state, raise your hand and wait for a microphone and state your name and company before asking. As Mikael already mentioned, we have Patrik Sjöblom and Tiina Naumanen to help with the answering.
Pekka Sjölien from Pohjola Bank. My question concerns the fourth quarter outlook. When we look at the guidance and this very strong third quarter, it means that the fourth quarter margins should come quite low, and it should be seasonally the strongest quarter typically. Will there be some extra costs, or is there some explanation for this?
There are, of course, some costs that are. They are not very big ones. We, you know that we have an ongoing discussion in Tampere for the reduction of close to 100 people. I don't know the outcome of that. That's an ongoing discussion. We have to remember, as you saw, that the Marine peak margins have been reached. It's a Marine coming down, so that has to be offsetted by INT. It may not be a dramatic drop, but that has an effect. The Marine volume is big. There's no extra anything that you could not calculate, but this is the dynamics here. INT has to go up, Marine will come down a bit.
Okay. Thank you.
All right. It's Erkki Vesola with Swedbank. two questions. First, regarding the group tax rate, it seems to be on a rollercoaster ride. Is this a cumulative Q1, Q3 rate kind of representative for full 2010? That's the first one.
Now Tiina.
Is this on? Yes it seems to be. Yeah, we are estimating that the full year tax rate should be approximately the same as we have now cumulative in Q3. There is no bigger extraordinary items now, either in this cumulative figure or we are not estimating that in the full year there shouldn't be any.
Okay, thanks. Another one regarding, you mentioned ERP system. Have you already chosen the system supplier or partner you have there? How far are you actually in that or are we just in a starting point?
We are just in a starting point from the group point of view. We have an SAP system in Marine. That's of course a very. We haven't chosen the system, no. In INT we have other systems. We will. We are that early in the phase. We have to get the processes right first.
Okay, thanks.
Thanks. It's Sasu Ristimäki from Carnegie. Got three questions if I may ask them one by one. Firstly, can you give us an idea of the FX impact on the order intake in Industrial and Terminal?
Tiina, do you want to comment or Patrik on the FX? Yeah.
Okay.
Next one.
We haven't seen a big impact of that currently. I mean, we have been, of course, trying to manage the currency risk, but no big impact now in the third quarter on that, on the whole picture as such.
I'm sorry. Can you elaborate on that a little bit since on one hand you say that you've seen the biggest increase in order intake in Industrial business in the U.S., on the other hand you say you have no FX impact? I don't understand how that's possible?
Mikael commented that we have a good development there. On the Industrial side we went down quite a lot. Looking at the total Cargotec, of course, that increase is still not that big. That's the reason why we have a good development there. It went down quite a lot on the Industrial side. There is still a lot to go to have a big impact on a Cargotec level.
We have to remember on the forex exchange, we have a company where we have production units all over the world, and we have component manufacturing all over the world. It's not so simple that if you sell to U.S. then the FX is this one. Many of the U.S. products come from Europe, some of them come from China, which means that they are in a way dollar-based and so on. It's an extremely complicated system. We are not going to talk about the result. We are not going to say now or ever that because of the foreign exchange this is, has a positive or negative effect on the result.
Because the variations are such that I would say that's a professional management's team job to manage that. It's more difficult if you are in bulk, if there's a world market price for steel or something that is based on one currency, then you have this, but we don't have that.
From the numbers it looks as if the Industrial business had order intake decline sequentially from the second quarter. Can you confirm whether this is correct and is it just purely seasonal impact or?
Did you say the-
The Industrial business.
Industrial business has a seasonality, definitely. We have to remember that They order in May and then June start to be the holiday season in Northern Europe. July, early August, holiday season in Central Europe. There is a seasonality every year.
Finally, you mentioned on the group level that the gross margin had some contraction due to mix issues. Can you just talk us through what these mix issues are? What parts of the mix have higher and lower gross margin?
We have not elaborated on that there are different cross margins in different products. That's as simple as that. I'm more trying to say that we are not worried about this small dip. I don't see it as a trend.
Thank you.
Jaakko Kela, Nordea. Just coming back to this previous question. I mean, could you once more sort of repeat and elaborate on this?
First on industrial, what was the seasonality effect and then the Americas, did they play a role in sales and orders? The same for the terminal side, the seasonality effect and the Americas, did they play a role in sales or orders? Just to get these metrics right.
Okay. In industrial, definitely Americas had a positive impact on order intake and, yeah, also on sales. Terminal sides, no, I wouldn't say that the Americas had no impact there. No. It was quite even all over the world. More in Asia, actually, because the total was Asia-dominated. No, you cannot see a recovery on terminal side in Americas.
Is, just to, memory's doing me tricks. You say that you had this 1 big order, well, not 1, but several orders, 200 terminal tractors in the US and an order for 14. Was that in the Q3 numbers?
Yes.
Yes.
Yeah.
In that respect, Americas would have had a positive impact on terminal side orders in Americas.
Terminal tractor is not a very expensive product compared to many other, many of the big terminal products.
Yes. It's Sasu Ristimäki again. We just had one Swedish company in the engineering industry warn that the steel cost increases are going to put a big margin dampener on next year's earnings. We can see that from your marine margins this year, you've benefited quite a lot from cost escalation clauses related to steel. How do you see that steel issue affecting your margin development in 2011?
If you take marine first, you have to remember that it's actually in close to 90% of the orders, they are steel neutral. They are, I mean, it has no effect on us. Why is that? It's so that the big shipyards who actually order the equipment from us, they have a much more favorable. They are talking about huge volumes when they buy. We piggyback on their volumes. From marine side, very minor impact. Some cranes, that's not a big one. If you go to industrial and terminal, could have a big impact if we would not be careful in if we get a very big order with big ship-to-shore cranes with delivery after two years. I mean, we are taking that into consideration.
It's a bit easier because they are project-based. We know when they are delivered. Of course, we have people who are tracking steel prices all the time and making analysis from here onwards. No.
It's right to stress the point, but clearly the marine business has had a structure of cost escalation clauses that worked in your favor in the last cycle or last couple of years. You don't see that as a problem for 2011. You think the cost increases are going to again be passed on to customers?
The cost, when you talk about cost, you are actually talking about manpower cost. The rest is passed on. Manpower cost is a bit easier. In marine, you have to remember that you always have two contracts. You have one contract for equipment, design, supervision, and the other one for actual delivery of that product. Of course, as you can guess, if the delivery includes steel, that the customer buys the steel, sells it to you, and then you make a crane or a hatch cover out of it, sell it back, as you guess, the margin is lower on that part of the contract than on the supervision part.
Yes, this is Tomas Skogman from Handelsbanken. I have two questions. First of all, about the production inefficiencies given that you have opened a new factory in Poland during Q3, but still the EBIT margin is up without sales growing and gross margin is going down. How do you see this going forward? I have another question after this.
The question about Poland, yes, you are totally right. Those of you who visited Poland saw that it's a new factory starting up. It's not close to its nominal capacity, but we are filling it up with product by product all the time. It's getting better and better from that point of view. The other part of your question was related to.
Just how this looks in the future. Will we have smaller inefficiency costs every quarter going forward from this level where we are now, or how does it look given that you've just opened this and you have reshuffled so much in your production? When you look at the gross margin, it's flat quarter on quarter, but still the EBIT margin is up with flat sales, so it's not coming from leverage in that way then.
No, no that's, you are totally right that we will not see how should I explain this?
I mean, the question is basically is most of it already seen or is this just a continuous trend that continues even with flat volumes?
Yes even with flat volumes when we-
In the same speed the next couple of quarters or is the big thing already seen in the reported numbers now in terms of decreasing inefficiencies?
The big thing is maybe not. Maybe it's a continuation, but doesn't mean that it's a straight line. We have seen a good increase now, then it will be flatter, then it will be up again. It's when you move products to one factory to another, and especially in the moving phase. We haven't moved that many product yet to Poland, so there is not the double cost yet. You get the efficiency, but then you get the double cost while you're moving. Maybe a double cost for one quarter.
My other question is about some kind of underlying feeling what's happening in this terminal side. We have spoken a bit about this, but still I lack some kind of a feeling just when you look at the different product segments within the terminal or the Kalmar business. What is really happening sequentially? Do we really see that it's some kind of an improvement still despite what you say about the sluggish demand still in the?
Yeah, of course, there's an improvement because many of the terminals have underinvested for 2 years. Now the volumes are back. Container handling volumes are back on the level that they were during the peak. The replacement, you will see this continuation of replacement order intake.
In what products do you see that now in the order intake in Q3? Do you see it in straddle carriers or these lift trucks, more kind of products or is it so that the mix is tilting basically to these lighter equipment now?
Yeah. As long as you have replacement, nobody will buy a replacement ship-to-shore crane. It's exactly what you're saying. It's reach stackers, terminal tractors, the smaller products, counterweight products. That's what you replace.
Thank you.
Okay, if we don't have any more questions.
Oh, here. There was one.
Oh, yeah. Tommi, please.
Tommi Railo, SEB Enskilda. If you could just discuss the maybe the length of the order book in the marine side. How much could we assume to be delivered in 2011? In terms of new orders you are taking in, what are sort of the delivery schedules there? When do the clients actually want them? Already in 2011 or maybe 2012? Also, if you could maybe discuss the quality of the orders you are currently taking in. My second question would be any indications for CapEx levels 2010, 2011, and 2012.
CapEx level, it's below depreciation now if you look at it. You should calculate it just above the depreciation. That would be the answer for the CapEx. If you then look at the length of the order book, let's start with marine. Marine has had a very healthy order intake now, so we don't give any guidance for 2011, but, I would say that, or I could say that it's not, it will not be lower than this year, just to give you an indication that there is no. If you go then to industrial and terminal, as we have said earlier, on the industrial side, the normal delivery time is three months.
Three-five months from order, just to give you an idea. Terminals, depends on what type, 6-12 months from order. The 12 months, 12-16 months, that would be for a big project. What I was talking about, that there's piling up for these big projects. That gives you some kind of indication where we are.
Yep. Erkki Vesanto. This is a housekeeping question. You had EUR 71 million order cancellation marine. I'm just asking whether EUR 294 is a gross number or net?
The two, the order intake number?
Yes.
Yeah, you can answer. Yeah.
It's the gross number.
Yes.
Cancellations in the order book, we book through the order book.
Yes
When they are from the previous years.
Okay. Thanks.
It's very tricky. That's why we have to do it, that we take it out of the order book. We have it here. Sometimes it might even be the same ship that is canceled here, and another ship owner buys it here. For us, it's easier to give it a new number, cancel it here, take it in here. If you go over a very long cycle, then I would say that 5% is a figure that I, when I looked at over 10 years for marine, that's kind of normal, call it cancellations. Just if you want to have an indication of when are we on a normal level. Of course, the longer we go for every month, yes, there was a big number of cancellation.
There were a few bigger cancellations here. Higher than maybe some kind of average would be. But in general, I would say that the number of cancellation threats is going down all the time.
All right, now we are ready to start to take the questions from the people on the phone lines. Operator, please.
The first question comes from the line of Timo Vesanen from Deutsche Bank in Helsinki. Please go ahead with your question.
Hello, it's Timo from Deutsche in Helsinki. I would have couple of questions, please. First one is basically, you know, I cannot help myself going back to this fourth quarter guidance that was already touched upon. I mean, you know, your sales guidance basically is implying
One. You know, at the same time, your upper range of the EBIT guidance is basically implying that your fourth quarter EBIT margin will be roughly 5%, down from 6.7% reported in the third quarter. I mean, you know, is there are some kind of additional costs or something that you know, but, you know, we don't know or how that does this mathematics actually work?
Does anyone want to answer or? Nobody wants to answer that question. No, there is nothing. That there is nothing. Yes, I mean, I said here earlier, we are sure to make the EUR 120 million. It will be about that. How much about that? This is the range we have actually given now. There is this uncertainty about the delivery. Of course, the uncertainty, we have been more looking at the operating profit, EUR 120-130.
You are totally right that in this uncertainty, it might be that in that case, if it's a negative, if we take the negative view on it, that would mean also that we would be in revenue below, because otherwise the mathematics doesn't work out. Yes.
Yeah. Okay. Fair enough. Then the second question actually relates to the. You say in the report that you have basically seen some pricing pressure in the project business, basically in the container handling side. Could you just, you know, walk us through, you know, how bad it is? What is the current project demand situation? Have you turned down some your prospective projects just, you know, because of the low pricing?
First of all, we are very strict on the price level. We haven't turned down because nobody has got those orders. We will be very strict on those. That if the price level goes below an acceptable level for us, then we will turn them down. Talking about the price pre-pressure on that, of course there is. I mean, think about it. It's more than two years since anyone has ordered a big project. It's a huge prestige for those who get the one who gets the first project. This is, it's really a fight there in the whole market, and all the players are there. Everybody would like to have the first project. There are maybe six, seven big projects.
We don't know which will materialize first. Yes there is definitely a. It's more a prestige competition than anything else. we will see. we are very strict on, as I said, on the pricing.
Pricing. Right. Thanks. My last question would actually be just that could you quickly, you know, repeat what you did answer to Sasul's question on the steel costs, and if potential effects for 2011, because, you know, here at the phone lines, someone put a music on at the time, and at least, you know, I was not able to hear anything.
The music was here and there. No.
That actually really, you know, happened. Then, I jumped on the website. Then, I mean, I suppose everyone else on the lines did the same. Also, you know, the sound from the web died at the same time sir.
The big question about the steel price increases is, of course, the big volume of steel that we are using is coming from marine. It's on a level of 130,000-160,000 tons of steel. It's a huge amount of steel, and that's totally passed through to the customer. It's steel neutral to us. We will not make more money if the steel price goes up. We will not make less money if the steel price goes up. If you then look at the terminal business, then it could have effect on the big deliveries, big projects, and as I said, they are project-based, so we calculate them very carefully. We have our own team who is analyzing the steel prices. No, I'm not too worried about the steel prices.
If you then go to the smaller equipment, the industrial type of equipment, there we just have to increase the prices when and if the steel prices go up. I don't see it.
As the big, big risk. Okay.
Yeah.
Thanks. Fair enough. You know, that's all from my side. Thank you.
Thanks.
Once again, ladies and gentlemen, if you do wish to register for a question or comment at this time, please press star followed by one on your telephone keypad. To cancel your question, please press the hash or pound key. The next question comes from Johan Eliason from Sjovoll, Stockholm. Please go ahead with your question.
Hi. Just a bit of housekeeping. Could you remind me of the total sort of structural cost cuttings you now achieved over the last few years, and if there's something more to come? I heard you discussed a little bit of double cost in the quarter, but it was impacting this as well, that would be great.
First of all, the double cost is more related to when you move products from one place to another, then you have double stock, you have double overhead costs for that product. That's the type of double cost we are talking about. If we then go to Tina, would you like to answer? Tina or Patrick? We have exactly the right figure.
Said in the report, we estimate that the annual cost saving exceeding EUR 150 million was achieved this year. That is what we still believe.
That's the full impact already hitting a bit this year, so to say. You could say of the EUR 120-EUR 130 you are expecting before charges, EUR 150 is really coming from cost savings.
It's closer to 150. The small remaining part of the negotiated were finalized in March. It's closer to 150 this year.
Excellent. Many thanks.
The next question comes from Sebastian Klenk in UBS in Frankfurt. Please announce the question.
Yes, good morning, ladies and gentlemen. Just a few follow-up questions. Can you remind me on the number of cost savings you have achieved in terms of higher volumes which have lagged with your On the Move program, which could lead to some EUR 40 million cost savings in total? The second question would also be on potential margin drop in the fourth quarter with regards to your Polish factory. Thank you.
Can you repeat the first part? It was very difficult.
Well, when you have launched the On the Move program, you have initially indicated that half of the cost savings are structural ones and half of the cost savings, EUR 40 million-EUR 50 million, could be also volume-related cost savings. Have you seen any of these volume-related cost savings already dropping through?
Of course, when we launched the On the Move in that year, from that, the volume has gone down. We haven't really seen the volume impact yet. Of course that when the volume starts to increase, that will have a positive impact in the future. Now we are on lower levels, no volume impact in this year.
The volume impact is still to come. Margin drop because of the Polish factory, it's not really a margin drop because of the Polish factory. It's more extra cost, as I said, because we are moving products from one location to another.
Okay. Thank you.
We currently have no further questions on the telephone line. Thank you.
Do we have any more questions in Helsinki? Tommi , please.
Yes Tommi Railo SEB Enskilda. Your name has also been mentioned recently on the consolidation picture in the market. Have you had a look at Demag, for example, or would there be certain parts of Demag you would be interested in acquiring? Second question is that, of course, your balance sheet has strengthened quite nicely. Any thoughts how much firing power would you consider yourself to have in terms of acquisitions, which you have been indicating recently, but some levels, what your thoughts are?
Talking about Demag, first of all, I think that First, let's put it this way. In my opinion, Demag's today, it's on that level that is very difficult to calculate that it would make sense to acquire Demag. Let's say that it would be on whichever level. Would we be interested in it? We would be interested in the terminal part, but we would never be interested in buying the whole. As I said earlier, we will go into certain segments, and to buy something new and to build a segment out of that doesn't really make sense. Total Demag, no. If someone wants to sell us the port part, yes, we will have a look at it.
Talking about Demag, first of all, I think that First, let's put it this way. In my opinion, Demag's, today, they... it's on that level that is very difficult to calculate that it would make sense to acquire Demag. Talking about Demag, first of all, I think that First, let's put it this way. In my opinion, Demag's, today they. It's on that level that is very difficult to calculate that it would make sense to acquire Demag. Let's say that it would be on whichever level. Would we be interested in it? We would be interested in the terminal part, but we would never be interested in buying the whole.
As I said earlier, we will go into certain segments, and to buy something new and to build a segment out of that doesn't really make sense. Total Demag, no. If someone wants to sell us the port part, yes, we will have a look at it. I think, as I said earlier, that the must-win battle is China. I think that people are sometimes making the mistake and say, "Okay, the winner is the one who can combine European manufacturers." No, the winner is the one who has a good success in China. It's not, it would not be priority one even if, even if it will be, even if part of it will be for sale. Your second question I already-
Balance sheet.
Balance sheet, yes. It's of course definitely much more than it was for a year ago. That's why we have it like this. We have to have a firing power of EUR hundreds of millions if needed. We have decided to be the consolidator on those segments where we are going to go in. We feel that there's much to do on the marine side, new equipment, very much to do on the offshore side, and so on. There are many interesting areas.
Sanna Kaikkonen. In marine, do you think the Q3 order intake level represents well the underlying demand or was there anything special in that?
It's very difficult because it's more than, I think almost two years that we have said that it cannot continue like this. Yes, it seems to be that level. Yes. There's huge number of offshore projects, very big number of special vessel projects, which for us are extremely interesting because the revenue per ship is much higher than on a bulk carrier and so on. In the foreseeable future that's yes. It might drop off one day, but it looks nice.
Okay, thanks.
Hi. Just on the timing of the marine orders, what kind of lead times are you typically setting at the moment? In other words, of the order intake you're booking now, say, in Q4, how much is very short term, kind of 3-6 months and how much is kind of beyond 12 months lead times?
Nothing is 3-6 months. Nothing is. I would say that everything is. You have to, okay, you have to take away service orders. They are of course coming. The product orders, you could calculate that nothing is between below 12 months. Very seldom. That's in the case of a cancellation and something new coming up.
In just in terms of then saying 2011 order intake again, excluding services, is there going to be much contribution to 2011 revenues from those orders?
Fairly, fairly small contribution.
Thanks.
All right. If there are no further questions, we are ready to close the session. I'm very sorry for the technical problems we faced today, please remember that we will have a transcript and of course the record of the audiocast up listed in our website later. Webcast will be there later today and transcript during the couple of days. Please look at those read those listen to the audiocast record if you missed some.