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Welcome to Cargotec's First Quarter 2023 Results Call on this historical day as we announce both record breaking results and a plan to separate Kalmar and Hiab. This is also the first result call for our new CEO, Casimir Lindholm. Welcome. In first quarter our comparable operating profit was record high driven by our core businesses and strong development in sales, underlying demand for our solutions reminded at good level. My name is Aki Vesikallio and I'm from Cargotec IR.Today's presenters will be Casimir Lindholm; CFO, Mikko Puolakka; Kalmar's President, Michel van Roozendaal; and Hiab's President Scott Phillips.Please pay attention to disclaimers in the presentations as we will be making forward-looking statements. Casimir will start by covering the quarterly highlights and group level figures. After him Michel van Roozendaal will enter the stage and cover Kalmar's first quarter followed by Hiab presented by Scott Phillips.Our CFO, Mikko Puolakka will go through MacGregor's quarter as well as financials and outlook. After that Casimir will get back on stage to present our plan to separate Kalmar and Hiab. After the presentations there will be a wrap up with a Q&A.With that, the stage is yours Casimir.
Thank you Aki. So comparable operating profit margin above 10%. We started off the year in a very good way. Orders received also on a healthy level, come back to that a bit later. Sales increased by 26%, especially in Kalmar and Hiab. And really glad to see comparable operating profit improving in all 3 business areas. Orders received continued to improve in MacGregor, and both Michel, Scott and Mikko will then talk more about the order and the order mix. But all in all, we see that the orders are on a good and stable level now, and that is especially true looking at 2023 where we find that we have a solid order book in all 3-business areas.We had a strong development in sales, especially in Kalmar and Hiab. There are particular reasons for that, and Scott and Michel will go through it in more detail. But all in all a great start to the year also from a sales perspective, and that was the main driver for the record high operating profit.Service continue on a good path, being improving quarter-by-quarter here. And again, really strong message here that service sales is improving in all 3 business areas. All in all, service share was 32% of total sales.The eco portfolio also continued to improve and is on good level. All in all, the eco portfolio share is 32% of Cargotec total sales in the first quarter.With that I will give now the word and the stage to Michel. Please Michel.
MY name is Michel van Roozendaal and I have the pleasure to present the Kalmar result. I'm very happy to present to you records comparable operating profit.You'll see that also the orders for our strategically important eco portfolio are continued to increase. And we have also now started the production of our electric range, which is testimony of our substantiality journey.If you look in a bit more detail, we see steady demand for Kalmar. The flip side is that some of the larger projects are taking a bit more time before orders are being awarded. But at the same time we see an order book that is very solid and service orders that are continued to be very strong.The order book is such that it basically covers, in essence, the rest of this year if you realize that there are no order backlog, in essence, for the service side and also spreads into next year.If we then look at the sales side, very strong development compared to Q1 of '22, 31% increase and also service sales which is maybe less spiky, shows a consistent growth of 18%. And what is important is that we have our capture rate, which means the part of our own business we capture is gradually and continuously increasing, which is testimony of our ability to basically perform the service business in an efficient and performance way.At the same time, we see on the flip side, some persisting tightness in volatility of component availability, which is still a challenge for our output. But in general, the improved efficiency of the supply chain makes that we have had the ability to reach this very strong sales level.If we then continue to look at margin expansion, I'm very pleased to show to you the historically highest percentage of Kalmar, 13%, which is the highest percentage we've ever had for comparable operating profit.If you compare that to Q1 of last year, it's an absolute -- it's almost -- not almost, it's more than double. And of course the percentage is from 7.6% to 13.0%. Why is that? It's driven by higher sales and also our ability to have good management of inflationary pressures. In general, we are starting or have started our lean journey and we believe we will continue to be able to perform strong on this side.Also we have announced last year you will recall that the exit of our heavy crane business and the losses which are underlying there were EUR 4 million lower. So that has led to this 13% profit margin.Thank you. I'm now handing over to my friend and colleague Scott Phillips. Scott, welcome to the stage.
Thank you, Michel, and good morning from my side. So in summarizing the quarter we had a strong start to the year. And as Casimir had alluded to you earlier, the strong start was largely supported by a big increase in sales year-over-year.Orders were declined year-over-year and sequentially slight improvement. I'll go into more details about that one. All enabled from the continued excellent operational execution in the business, both in our factories as well as our suppliers. Strong effort from all the team that we have at Hiab. So really proud of the job that everybody is doing.Our services business continues on a nice trajectory. Sales are up 21% year-over-year, as indicated earlier. Also at the same time, I'm pleased with very nice positive operating leverage, so well in line with our target framework.Then going into the orders, we're about in line with consensus, slight sequential improvement. We still have a nice strong backlog coverage of over EUR 1.1 billion, so we're nicely covered for the year.We did have a year-over-year decline of 21%. Keep in mind it's off of a rather strong comparable as the quarter 1 last year was our third highest quarter in the history of Hiab. But a nice start to the year nonetheless.We had, at the same time, continued challenges from really 3 factors that are pulling orders down. We've had the continuation of long lead-times and challenges with certain availability of components. That combined with long lead-times of truck chassis, the overall general inflation and then the interest rates are certainly having an impact on the delaying orders. Although, I must say that sequentially throughout the quarter, we see a nice development in terms of order activity. So really pleased about that.Then moving to the sales side, nice development both sequentially as well as year-over-year. We had 27% improvement on sales at EUR 432 million. Our service sales also improved nicely as I mentioned earlier, equipment sales up 28% year-over-year. So really pleased with the strong start to the year. Great execution, as I mentioned, from all of our key stakeholders and colleagues within Hiab as well as our suppliers.And I must say that a big thank you to our customers as well as we've been able to calculate our net promoter score year-over-year. So the strong services execution and the focus on customers is enabled us to improve our net promoter score by 40%. And if you go back to the Capital Market's Day presentation, that translates into strong percentage of repurchase. So really excited about that development.And then moving into operating profit. We have a nice, both sequential development as well as year-over-year, as we were up EUR 14 million in absolute value, 29% in terms of relative change year-over-year. So that delivered 14.2% results. So we're happy with that, that's well within our target framework. And a nice strong start to the year.At the same time, we are still under pressure from the relationship of our pricing as we target to offset inflation with the continued long lead-times. We are still slightly lagging, so excellent execution with the team to manage the fixed costs base in order to continue to deliver to our target profit framework. So really pleased with that one.So overall, I'd say it's a strong start to the quarter, strong confidence shown from our customers and of course really exciting news for the day.So with that, I'll turn it over to Mikko, and they'll talk about MacGregor.
Thank you, Scott. On MacGregor, this was the fourth quarter in a row when MacGregor order intake was actually developing in a nice way. 80% of MacGregor quarter 1 order intake came from merchant or services related orders. In merchant, especially from car carrier type of vessels and container vessels. We started to have a sizable order book in MacGregor, almost EUR 960 million, so very good basis for the coming quarter's revenue development. At the moment, still, the orders have a fairly long lead-time. So for example, in quarter 1, we did not yet see sizable revenue uptick from the order book. So this is expected now for the -- especially for the second half of the year to contribute then in revenues.And then on profitability, small positive result for the quarter 1, very much driven by the excellent performance in services and also the merchant division was performing well. Offshore division was still loss making. And as you recall, also from the previous quarters, we have started or we are executing the offshore restructuring program and targeting to EUR 14 million cost savings during this year.A couple of financial highlights on the Cargotec level. As already discussed by Scott and Michel, we have an excellent order book, almost EUR 3.5 billion and that is mostly covering the full year equipment sales estimate already, so a good basis for this year's revenues.Our eco portfolio sales are almost EUR 350 million, so almost 1/3 of Cargotec revenues -- quarter 1 revenues are coming from eco portfolio, so for example from electric equipment and services, showing basically the strong development in our strategy -- sustainability strategy execution.Comparable operating profit. Like discussed already earlier EUR 112 million, 85% improvement there. Very much driven by the core businesses' strong performance, Kalmar and Hiab at 12.4% for the first quarter. And then also comparable operating profit including one off costs of EUR 8 million which were related to MacGregor, the operating profit improved by 177% in quarter 1.Our cash flow improved from last year's quarter 1, but it was still burdened by the high net working capital, especially by the inventory increase. We have still component availability challenges like described by Michel and Scott, and this is resulting to kind of extraordinarily high work in progress. More than EUR 300 million or roughly EUR 300 million work in progress, equipment which is waiting for components. So this is still burdening our cash flow. But gradually, hopefully, we see also improvement in the supply chain.Our balance sheet this very strong. Gearing 26%. No major debt repayments during this year. And we are also well hedged against the rising interest rates with 60% of our loans in fixed interest rates.And then we reiterate our guidance for this year. We expect Kalmar and Hiab, the core businesses, comparable operating profit to improve from last year, supported by the strong order book.And then in MacGregor, we expect the MacGregor results to be positive this year, very much driven by the improvement in merchant and services and then the restructuring in our offshore business.And then I would hand it over back to Casimir to the second big news of today.
Thank you Mikko. So on top of a strong start to the year, strong financial performance in in the first quarter, we have other exciting news.So this morning Board of Directors at Cargotec decided that we're going to investigate and plan a potential separation of Kalmar and Hiab. There were other strategic options also involved in that process. But this one was the one that the Board decided upon.And this journey starts today and it will be going into a planning phase here during Q2 and onwards. And at the end, we're looking to separate Kalmar and Hiab into 2 focused, world leading, standalone listed companies and through that unlock shareholder value.The technical aspect of it is that we are planning to separate Kalmar through a partial demerger. The listing of Kalmar would happen in Helsinki and is expected to take place in 2024. So we'll need this year for planning and the execution later on if the Board finally decides to go ahead with the plan.At the same time, we'll continue to focus on turning around MacGregor. And like Mikko was referring to, we see positive things happening, especially on the aftersales service side and merchant business in MacGregor, and then the focus is on turning around the business in offshore.At the end, if the planned actions are completed, there would be 3 separate businesses: Kalmar, Hiab and MacGregor, like announced already last year. All the actions are subject to shareholder approval and normal local legal requirements, but we do not need approval from authorities in this process.And the aim around it and the separation is, of course, to support Kalmar and Hiab in their journey regarding growth, both organic and inorganic growth. And this would also mean that Kalmar and Hiab would not compete for the same resources, for example, equity or investments.The rationale behind it is that we will, by doing this, unlock full potential of Kalmar and Hiab. Clear strategies, clear structures, easier governance all the way down from Board to management focus on one business. And there is no real cross-selling or operational synergies between Hiab and Kalmar, and they could focus on their own business to 100%. And again, as mentioned before, there wouldn't be competition around capital allocations, for example.I fully believe that both Kalmar and Hiab would be more agile. They would be more focused, both internally and externally, towards customers. But also internally regarding processes and systems and so forth. It will simplify the overall structure and give transparency, both to investors and owners, and in that sense, also accountability all to Boards and management.It is also a great opportunity for our employees at Cargotec because we, of course, need to develop Kalmar and Hiab to become then separate companies, and there are a lot of functions that need support and needs to be established within Kalmar and Hiab and on top of that, a very exciting journey within this project.As mentioned before, we see no real overlap regarding customers or sales channels between Kalmar and Hiab and the focus in their own business is a positive one. And again, also giving more power to the M&A journey, especially regarding Hiab going forward.Today, of course, we have Cargotec on top in this conglomerate model and Kalmar, Hiab and MacGregor as business areas. During this transition period, the aim is then in '24 to have Kalmar as a separate listed company, then over some period of time, Cargotec would continue with Hiab and MacGregor as business areas. And then we are heading and trying to find a solution for MacGregor in '24. And at the end, there would be the targeted structure where we had Kalmar and Hiab as separate companies.The structure, as such, listing like mentioned before, listing happening in Helsinki. Then ownership of Kalmar and Hiab would be that the Cargotec shareholders would be owners then in Kalmar and Hiab going forward.There is also another strong message here that we do not need any equity, we do not need capital for this transaction to happen and to go through. And again, we do not need any permission from authorities. So it's very much an internal planning project and execution. But of course, at the end of the day, we need shareholder approval.Next steps and time plan. We will start the investigation and the planning. And this includes, of course, the full organization, our employee representatives. And then when we know more, we'll come back to you regarding this topic and communicate when things progress.And again, during '23-'24, we need -- if we go through with this project, we need approval from Cargotec Board of Directors regarding the partial demerger plan and then shareholder approval later on. During '24, again, aim to have Kalmar as a separate listed company in Helsinki and continue to look for a solution for McGregor. And at the end of the day, we would have Kalmar and Hiab as separately listed companies in Helsinki.That was the end of the presentation, and then we go to Q&A.
Thank you, Casimir. Thank you, Mikko, Michel and Scott as well. I will welcome the gentleman back on stage. And with that, we are ready to start the Q&A.Please, operator, please go ahead.
The next question comes from [ Marco Moylan ] from Nordea.
Hello. This is [ Marco ] from Nordea. I have actually one question regarding this planned demerger. So if it takes place, how does it affect to the outstanding bonds? Does it need like approval from the bondholders? Or are you required to redeem the bonds if the demerger takes place? Or what is like the impact to the bondholders at this stage?
Yes. During the planning process, of course, we would be also contacting the lenders and including also the bondholders. And then there are various ways either to get the waiver or then possibly redeem the bonds. So this is something to be evaluated now also as a part of this planning process.
The next question comes from Panu Laitinmaki from Danske Bank.
I have 2 questions. Firstly, on Kalmar's margins. I mean, it was a very good level. And when we see numbers that we haven't seen before, it always kind of raised question that, was there something exceptional and how sustainable do you see this level going forward. So can you please talk about it like how did it be so good? And what do you see going forward?
Yes. Thank you for the question. We were pleased with the margins. There is no extraordinary elements, but we had a favorable mix at this stage for the slightly more profitable units. At the same time, it's a testimony of our ability to execute and perform on the margin expansion, operational excellence.At the same time, we see ahead of us some challenges more around the volatility of the components availability and the mix. So at this stage, we won't make any statements as to how sustainable that would be going forward, but we were pleased with the quarter.
Okay. Then on the planned demerger. Can you kind of -- I understand that you are going into a planning phase now, but any kind of initial thoughts how would the companies look like? How would you split the group costs into these new companies?And then did I understand correctly that like Hiab will remain as the Cargotec and then Kalmar spin off. So is it so that MacGregor will remain in Hiab until it's divested? And -- or how does it play out?
Thank you for the question. Yes, like in the last pictures there, there were described that, yes, MacGregor will stay within Cargotec and of course, Hiab as well when we enter into '24. And then we haven't come that far in the process that we would be able to talk about how fixed cost will be split going forward.But that is, of course, a exercise that we need to do as part of also building the functions within Kalmar and Hiab so that they can be stock-listed companies and have listing readiness on their own. So that is exactly one of the key parts of this process, how we plan the organizations.And there's -- of course, there will be both internal and external recruitment processes during this time if the plan as such is approved later on.
The next question comes from Johan Eliason from Kepler Cheuvreux.
Its Johan at Kepler Cheuvreux. Sorry, I haven't been able to see your presentation. There seems to be some technical issues for me. But I was just wondering about one wording about this demerger. You said partial demerger, but it's pretty clear that the Kalmar business will be sort of handed out to Cargotec's existing shareholders. It's not like the Cargotec Holding will sort of partly remain with Cargotec, just to make that clear?
Yes, you are correct. It's a partial demerger, meaning that basically Kalmar related assets and liabilities are carved out from the current listed Cargotec OIG, and there will be a new listed company with the new company identity code. And the current Cargotec shareholders would own with the same proportion the newly established Kalmar listed company. So, yes, partial demerger.
Yes. Good. And you plan to keep the same share structure with high voting shares and low voting shares?
This is something that will be evaluated also as a part of this planning process. So once we have more clarity on the planning, this will then be also kind of open more.
Excellent. Now just timing-wise, I mean you want to sell MacGregor, but you weren't able to do that last year. Is it -- is the merger of Kalmar sort of dependent on that you have somehow secured a potential buyer of MacGregor before you do this? I mean, otherwise, you would be risking Hiab sitting with this not so well performing unit.And then the follow-on on that one is, is that presumably you will get cash for the McGregor divestment? And will those only go to the Hiab shareholders one day when the MacGregor part is divested? How timing-wise, is it linked in any way?
Thank you for the question. It is not linked in any way. So all the 3 process here are going on their own. But the aim is to find a solution for MacGregor in '24. But that, of course, requires that we are able to turn around MacGregor in '23, and it was a good start in Q1, especially then in service and merchant businesses. But it's not linked. So if we wouldn't be able to find a solution, for example, in early '24 for MacGregor, that doesn't stop the Kalmar process.
Okay. And then just on the operational numbers, order and revenues, obviously deviated in the quarter for obvious reasons. But I was just wondering how much of this sort of growth in orders were price related? And how much was it in the sales development that was price related of the growth there?
Yes. I would say that overall, if we look quarter 1 order intake, there is certain element of price increases still, as we have been basically increasing throughout 2022 year prices every quarter to a certain extent. We have not disclosed this specifically by the business areas. But I would say that the price element is getting smaller and smaller as we proceed now with the quarters as already quite sizable price increases were made last year.
And in the revenues?
In the revenues, I would say, depending a bit on the business, it's ranging -- the price increase impact is ranging from 1/3 to 2/3.
Okay. And this is valid for Kalmar, Hiab, I suppose.
Yes. Yes.
Please state your name and company.
This is Antti from SEB. I'll start from the operational side and a follow-up on the previous question on profitability and margins.I mean, we've seen this kind of a very strong margin development now in Q1 for many of the industrial companies. Should we be a bit cautious going into the back half of this year? I mean you've done a lot of price increases. Now you're seeing a lot of deliveries going out and perhaps the inflation is moderating.But how we're kind of accelerating labor costs and things like that impact then the delivery margins going into second half. And I mean you're not raising your prices anymore. So should we be a bit cautious on how this trend continues throughout the year?
Yes, in general, you are right that there is some moderation in the inflation. On the other hand, there is labor cost increases. What we have seen, for example, in the component prices is that in some areas, the raw material costs have been declining. But then on the other hand, the energy costs as well as labor costs have been offsetting. So all in all, one could say that actually the component prices has remained fairly stable.We need to keep an eye on our own labor cost development. And in some areas, we have done some moderate price increases still during this year in order to offset the inflation impact. So overall, we are keeping a close eye on the margin development and are doing, of course, our internal development actions, design-to-cost activities in the business areas to reduce the cost of raw material, but then keeping an eye also on the prices.
Antti allow me to get a little bit flavor, if I may. I agree with your statement about caution, but let me add one element which is relevant for Kalmar and that is the freight cost, which is now a significant component. And we see that actually coming down at this stage. But I do agree that we will be cautious for the back half of the year.
I mean I'd imagine your clients are always asking for lower prices and lower prices, but it is something that is starting to pick up now that we are seeing this moderating inflation and perhaps some of the end demand is falling off as well. Is there a pressure of lower prices?
Is there a pressure of lower prices? There's always a pressure of lower prices because we got competitors there. At the same time, there is still an element of demand. So at this stage, we are at equilibrium between supply and demand with the price level, which is currently being quoted and being accepted by customers.
Okay. And then a couple of questions on the demerger plans. I mean, I just want to clarify something regarding any shared resources between Kalmar and Hiab, especially on the production side. So there is none -- there's nothing that would kind of trigger any extra CapEx for either of the businesses as the demerger has been executed?
Yes. No, speaking from Hiab's side. And I think I can talk for Michel as well, the answer to that one quickly would be no. No need for additional CapEx. And at this time, no issues with shared operational facilities.
Remember that we have --
So basically, you just -- sorry.
Yes, it's good to remember that -- yes -- from the manufacturing point of view, we do not have shared factories, but there are certain shared platforms like IT, IT systems, which would need to be separated for this kind of demerger purposes. And we have a shared service operations, of course, where we need to also see that how to arrange -- that to support also the demerge the Kalmar.
Okay. And then perhaps just a couple of technical questions helping to value the businesses individually. So Mikko, maybe you can remind what has kind of been the maintenance CapEx levels of the 2 businesses, the sustained working capital levels, the cash conversions, the returns on capital and so on for Hiab and Kalmar separately. If you go back, let's say, 5 years.
Yes. I would say we have not disclosed the business area, specific CapEx numbers. But overall, on Cargotec level, we are talking about EUR 80 million to EUR 100 million CapEx as we are in the assembly only operations, the CapEx as such is a fairly small amount in our business. The cash conversion, like described also in the Capital Markets Day has been typically for Kalmar and Hiab at 100% or in some years, even above 100%. However, due to this component availability situation at the moment, cash conversion for both businesses has been below 100. But in a more normal situation expected to be strong cash generating businesses.
But am I correct in remembering that Kalmar has a bit more favorable working capital versus Hiab where you perhaps hold the more inventories or am I wrong here?
I would say that in Kalmar's case, in history, it has been so that we have had the heavy cranes where we have had the advanced payments, and that has been kind of bringing additional cash in Kalmar. But otherwise, I would say that the cash generation profiles for Kalmar, the new Kalmar for Hiab would be very, very similar.
And the returns on capital employed, I remember that maybe you had a number for the core business on CMD, but does that differ materially between the 2?
In Hiab's case, it's somewhat higher than in Kalmar's case due to the higher -- slightly higher profitability rolling 12 months profitability, but very strong ROCE numbers for both businesses.
Please state your name and company.
This is Tomi Railo from DNB. A couple of questions. Firstly, Casimir, you mentioned other options were involved with regards to potential split. Can you just share a little bit what you meant with other options?
Yes. Thank you for the question. There were options where there were different roles that Cargotec could play in the future. Those were the main discussions being at the holding company or then the separation, like we're seeing now today. So those were the main discussions that were part of the strategy process that what would be the role of -- potential role of Cargotec.
Okay. So you're not suggesting that there has been approach from outside the company or industry private equity or so.
No, no. This was the purely around strategy of the organizational setup, internal discussions from a strategy point of view that what would make most sense going forward. But this one is the one that we feel that -- and the Board feels that this unlocks the potential on a market cap valuation point of view the best way forward for Cargotec.
And then maybe operationally, Hiab orders down 21%. I know you -- we know the comparison. But can you just explain a little bit geographically where did you see weakness and then by end markets, where was the weakness coming from?
Yes. In terms of the geographical piece -- thanks for the question. A little bit weaker in Europe versus the U.S. And in terms of end markets, more impacting on the, let's say, the heavier side of the business versus the smaller equipment solutions.
And as a follow-up, would you pinpoint that the building, for example, weakness was visible?
Can you repeat the question, please?
Yes. So in terms of like construction-related activity building-related activities, did you see weakness there?
Not driven from the end-user activity levels. Actually, there was -- sequentially through the quarter, there was improvement in activity levels there. It's much more the 3 variables I talked about earlier. The combination of high inflation, long lead-times, interest rates are 4x to 5x higher. So it is creating some delays in decisions around certain equipment solution purchases. So less to do with the end-user markets.
Okay. And then a final question. If you can say anything about the April activity. Are we trending similarly in Kalmar and Hiab demand point of view?
Yes. I mean, overall, if we are looking at the activity levels, whether it's in equipment utilization activity or what we see from the customer side sales funnel point of view, very similar kind of activity levels, what we have seen throughout the quarter 1 overall. No changes in that area.
Just as a follow-on, I wouldn't talk about what type of activity we're seeing so far within the quarter that we're not yet reporting. But as I stated earlier, sequentially throughout the first quarter, we did see a nice uptick of overall quotation activity. So we're a bit optimistic in that regard, but too early to talk about the current period.
Please state your name -- [Technical Difficulty]
Sorry, the offshore division did a high single-digit loss still. But like I said already earlier, services, very strong performance. And then also in the merchant business, we have had a solid performance, which is actually expected to further improve as we go throughout the year when the orders what we have been getting during the last 4 quarters are moving into revenues.
Sorry, Mikko, but I don't really understand this in the offshore. When you have a big provision in the fourth quarter, I mean, what does it mean for kind of the margin going forward for the offshore? I mean, when you did it clean up in the fourth quarter.
Yes, we have still loss-making projects in offshore and those continue to burden the offshore division result until those projects have been finalized.
Okay. And then I wonder whether you -- 1 whether it has been a consideration that Kalmar and Hiab, if they get a greater valuation on the stock market, if they could we see a chance to use their own share in acquisitions. I mean has it been a problem for Cargotec that you have been forced to do all acquisitions with cash given the low valuation?
No, I don't -- I mean, that's part of the journey going forward and the planning and the financial structures balance of Kalmar and Hiab going forward and the financial solution at the end that with what kind of balance sheet and what kind of equity they go forward, that is part of the planning phase as well. So -- but it does not -- so far that has not been a burden or a problem for Cargotec to do M&As.But then, of course, like stated before, when you have 3 businesses competing about resources, then you, of course, have to prioritize during the journey. And then if this plan goes through, then they are on their own and then the focus is only on one business out of on valuation and on balance sheet in the respective companies. So it clarifies things, and I think it improves decision-making going forward.
And do you have any early estimates how large the new head office costs will be that we should add and perhaps in R&D?
No, we don't have any estimates that is part of the planning process look at the organizations in Hiab and Kalmar parts of those needs to be strengthened to become listed companies in the future, especially regarding the functions. But that is part of the planning process, to look at the headquarters on Cargotec level today, and there will be a lot of opportunities for our employees in new and interesting roles and responsibilities within Hiab and Kalmar.
To R&D next. Yes, what comes to R&D expenditure, we do not have, at the moment, any more R&D expenditure on group level after the latest operating model change, what we implemented last year, basically all R&D type of activities have been moved to the business areas. So that roughly EUR 100 million, what we have had in the past is basically in those 3 -- all 3 businesses.
Reading your statement, it sounds like one alternative is also to spin out MacGregor as an independent company and not sell it. Is that right? Do I understand that right?
I think it's a bit early days for that conclusion. We will continue to focus on the business, and that goes for all 3-business areas. That is the most important thing to drive our day-to-day operations. And then the functions in this case, will focus on planning of things that is to come.Regarding MacGregor, we're looking for a solution in '24, too early to go in any direction on that one. First of all, we need to turn MacGregor around it and have a good '23, and then we take it from there.
The next question comes from Panu Laitinmaki from Danske Bank.
I just wanted to come back to the demand topic. Basically, you said in Hiab that you saw an improvement sequentially during the quarter. So I'm wondering kind of what is the magnitude? How big was the improvement like at the end of quarter compared to how it started? And basically the same question for Kalmar, what do you see there? Was the trend weakening towards the end of quarter or otherwise?
Yes. Basically, I'll comment the same way I did earlier. Thanks for the question again. The quotation activity increased nicely through the quarter, the magnitude, which I can't comment on, but a good strong development in terms of the quotation activities. But nevertheless, the decisions are being delayed due to the factors that I shared earlier.
Comments from Kalmar, where we -- and I made that comment in my brief pitch is that notably it is slightly larger projects take a bit more time to be decided and awarded. So that means that some of the demand is basically pushed a little bit backwards, only comment to make.
So you basically see it as that things take longer, but the pipeline as such remains fine? Or how do you see it?
I would agree with that. And of course, there's a mix between some of the various vehicles we sell and the slightly more, if you like, complex projects. So the comment is basically referring to the slightly larger projects.
And just to reiterate the underlying demand drivers remained quite healthy as we laid out on the slides earlier.
Okay. Maybe finally, how much would you kind of describe that out of Kalmar's demand is something that's replacement for the customers?
A fair bit. I won't give you any numbers, but we got a 65,000 total vehicles out basically all over the world. And many people come back to Kalmar and there is a -- I should say, natural economic life cycle. And so there is an underlying demand, if you like, which basically doesn't mean that there is a growth in the application. It's basically the replacement cycle.And given the strength of Kalmar, given the fact that we got 65,000 vehicles out there that demand for replacement is quite, I should say, substantial and gives a strong underlying continuous demand, which is less affected by the cycles.
Please state your name and company.
This is Antti from SEB. And apologies, Scott, if you already mentioned, but could you talk a little bit about what you're seeing in terms of the truck makers production and delivery volume improvements. I guess that's been curtailing the growth in your business. So is that improving? Is that impacting the industry lead-times, your own lead-times positively? And how do you see that playing out throughout the year?
Yes. Thank you, Antti. The way we're seeing it is you've seen a few reported results so far from the truck OEMs, and you see a decent year-over-year improvement in overall sales volumes. It's a mix with regards to the lead-time.The lead times still are an issue and from 2 dimensions, not only the overall time, but then also the precision or the variability around when the chassis arrive. And it varies by markets. I can't comment or I'd prefer not to comment at the real granular level by country, but we do see a different situation depending upon the geography.So we've yet to see an overall improvement enough that will allow us, let's say, to maximize the potential that we would have given our inventory position and the order backlog to be able to convert further the inventory and the backlog and the sales. So we look forward to a continued positive development on the truck OEM side.
And what is currently your own, let's say, average lead time that you can now, let's say, promise to your clients if they are ordering on the second quarter?
Yes. The -- well, our lead times in terms of being able to recognize, let's say, invoice the unit is still the controlling factor is the truck lead-time. From a product line perspective, as well as each of our factories, we're actually well within our target corridor of being able to deliver according to our planned lead-time, so if we were to see truck chassis lead times get back to, let's say, pre Q3, Q4 levels of 2020, then we would be able to adjust quite quickly to accommodate those improved lead times.
And would you imagine that this would encourage more demand from your clients? Is this a big pain point regarding actually firming orders and so forth -- or are everybody just used to the new situation and ordering with long lead times?
It's a mix depending upon the product line. In some cases, you're exactly right. And in others, again, it depends, as of course, Mikko talked about in previous quarters, there is a level of demand that was driven by securing manufacturing slots in the future. So that has materialized in some of our sequential and year-over-year development order intake in past periods.And -- but overall, I would say it would be a favorable development from a customer side if lead times were to continue to improve over time. As I mentioned earlier, the underlying demand drivers are still in quite a good level.
The next question comes from Erkki Vesola from Inderes.
Its Erkki from Inderes. Just to make sure, are there really no operational synergies whatsoever between Hiab and Kalmar, for instance, in the Poland factory and the linked supply chain.And linked to that, how will the manufacturing structures evolve after the demerger or what will the changes be if there are any changes in the manufacturing set up.
Yes. It is -- if you look, for example, our Polish factory, the Stargard factory, we have separate buildings. So Hiab is a separate manufacturing or assembly operations at Kalmar. We have some joint sourcing activities. But at the moment, it's difficult to estimate that what kind of possible negative synergies, there could be -- expectation is that no major negative synergies expected.Otherwise, the manufacturing operations, as discussed earlier, are business area specific. And then we have certain common platforms like the ERP system like the shared services operations, which are to be separated should the demerger be approved.
Okay. And then just we already talked about the headquarter functions. But is it -- so that you are not at all concerned about the potential negative synergies by doubling the headquarter functions. I'm in establishing HR, IT and other contra functions?
This is something what needs to be evaluated during the planning phase. And then, of course, we need to be careful in the sizing calculations for Kalmar and then, of course, the remaining Cargotec headquarter functions.But ultimately, of course, splitting one into 2 might increase to a certain extent, the cost as we need to extrapolate certain competencies. But on the other hand, like Casimir said, there are multiple other synergies like agility, transparency, capital allocation, which, in our opinion, outweighs the possible moderate cost increases.
And for example, regarding systems, it's not guaranteed that when you have many businesses under one umbrella that it makes it cheaper, that is not always the case. So I think there are opportunities in the other direction as well to simplify all the way from the governance to running the business processes, interfaces and so forth. So I think there's a lot of opportunities as stand-alone companies to be specialized and more focused than more agile.
Okay. I am looking forward to further information probably in the coming months.
There are no more questions at this time. So I hand the conference back to the speakers.
Okay. Thank you for the great questions and for your interest today. And thank you, gentlemen, from the great answers. We will come back with our second quarter results on 20th of July. So until that stay tuned.
Thank you.
Thank you very much.
Thank you.
Thank you.