Cargotec Corp

OMXH:CGCBV

Earnings Call Analysis

Cargotec's Strong Q1 Performance Amidst Strategic Changes

Cargotec reported a strong Q1 2024, with Hiab and Kalmar showing stable demand. Hiab achieved a 16.6% operating profit, up 12% year-over-year, despite a slight sales decline. Kalmar's orders decreased by 15%, but the operating margin rose to 13.5% due to cost-saving measures. MacGregor's performance improved significantly, with operating profit jumping from EUR 1 million to EUR 11 million. The separation of Hiab and Kalmar is on track, with completion targeted for July 1, 2024. The company's guidance includes operating profits of over 12% for Hiab and 11% for Kalmar.

A Promising Start: Overall Performance Summary

Cargotec has emerged strongly from the first quarter of 2024, marking this as the fifth consecutive quarter of stable and solid performance. The company reported a robust cash flow of EUR 174 million, attributed to effective management across all three business segments: Hiab, Kalmar, and MacGregor. The strong operating profit margins across the segments, particularly reaching a historical high for the first quarter at 13%, underscores the operational excellence being achieved at Cargotec【4:9†source】.

MacGregor: Turning Losses into Growth

MacGregor showcased significant recovery, posting a comparable operating profit of EUR 12 million, a considerable leap from EUR 1 million in Q1 of the previous year. The key driver of this improvement was a 29% increase in sales, mainly derived from the merchant and service segments, which contributed about 90% of MacGregor's order intake totaling EUR 267 million【4:2†source】【4:3†source】. However, challenges remain within the offshore business, which continues to be a drain, resulting in losses of approximately EUR 10 million, pushing down total profitability to 6%. The current focus is on successfully delivering offshore projects expected by 2024 to enhance profitability【4:2†source】【4:10†source】.

Hiab: Consistent Demand Amidst Marginal Declines

In Hiab's performance, a steady demand has sustained around EUR 380 million for six consecutive quarters, although sales fell by 4% this quarter due to a declining order book. Notably, the comparable operating profit improved by 12% year-over-year to 16.6%, demonstrating operational efficiency amidst inflation challenges【4:1†source】【4:17†source】. The segment's service sales have recorded a solid 4% growth, illustrating a resilient customer base despite broader market fluctuations.

Kalmar: A Mixed Demand Landscape

Kalmar reported a sequentially stable but complex business environment with orders received amounting to EUR 402 million, down 15% year-over-year. This downturn in orders reflects delays in larger equipment orders and destocking among distribution customers. Nevertheless, Kalmar secured significant contracts, emphasizing its robust positioning in the market【4:6†source】【4:17†source】. The comparable operating margin improved to 13.5%, showing that cost-saving measures initiated last year are yielding results【4:3†source】【4:4†source】.

Strategic Outlook and Cost-Saving Initiatives

Cargotec has set ambitious yet cautious guidance for 2024, with expectations for operating profit margins above 12% for the group, with Kalmar targeting above 11% and MacGregor aiming for operating profit greater than last year's EUR 33 million【4:11†source】【4:10†source】. The management highlighted ongoing cost-saving initiatives seeking EUR 50 million across the company, with EUR 30 million specifically aimed at Kalmar, and another EUR 10 million expected from MacGregor adaptations【4:10†source】【4:3†source】.

Upcoming Demerger and Market Positioning

Of importance to investors is Cargotec’s plan to separate Kalmar and Hiab into independent publicly listed entities by July 1, 2024. This strategic move is anticipated to streamline operations and enhance market focus【4:6†source】【4:8†source】. The management is adamant about not deviating from this timeline despite existing challenges, ensuring targeted delivery on their commitments and optimistic on finalizing the sales process for MacGregor within the second half of 2024【4:12†source】【4:11†source】.

Concluding Insights

The first quarter results of Cargotec reflect a pathway of recovery for MacGregor, steady operations amid challenges for Hiab, and cautious optimism in Kalmar. Driven by cost-saving initiatives and strategic demergers, Cargotec is poised for potential 2024 growth. Investors should keep a close eye on the execution of these strategies along with the successful conclusion of ongoing projects and the stabilization of demand in Kalmar's segment to assess the evolving investment narrative【4:12†source】【4:9†source】.

Earnings Call Transcript 2024-Q1

[Aki Vesikallio, executive]

Welcome to Cargotec's First Quarter 2024 Results Call. My name is Aki Vesikallio. I'm from Cargotec's Investor Relations.Today's results will be presented by Cargotec's CEO, Casimir Lindholm; CFO, Mikko Puolakka; Hiab's President, Scott Phillips; and Kalmar's President, Sami Niiranen. Welcome to the team, Sami. The presentation will be followed by a Q&A session. And please pay attention to the disclaimer in the presentation, as we will be making forward-looking statements.With that, over to you, Casimir.

[Casimir Lindholm, executive]

Thank you, Aki. Welcome also from my behalf. My name is Casimir Lindholm, CEO of Cargotec. Really happy and proud to present the first quarter results. This is the fifth quarter in a row where Cargotec has stable and good performance. All business areas are improving regarding operating profit margin.We have good and stable demand in Hiab and Kalmar. We'll come back to that a bit later. MacGregor's merchant business and service business performed on a good level. So we see improvement and clear improvement in MacGregor in the first quarter. We still have some challenges remaining in the offshore business.Also really happy to present strong cash flow of EUR 174 million in the first quarter. And all in all, the demerger plan and all the work that we're doing internally and have communicated externally is progressing according to plan.I will go through the update and the plan separation of Kalmar and Hiab, group level development as such, and then I'll give the word to Scott and to Sami, and then of course Mikko will present MacGregor and all the financials and the outlook. And then we end up with the Q&A.So separation of Kalmar and Hiab progressing according to plan. When we announced the Q4 results, we also announced the demerger plan. We have been working since then relentlessly on the project, both internally and externally. We have received consent from the bondholders and really happy to welcome Sami Niiranen, who started on the 1st of April as President of Kalmar and CEO to be of Kalmar.Cargotec and Kalmar Boards proposed to the AGM a large search process in both cases. Really happy to see the end result of that search. We have 4 new Board members joining Cargotec Hiab to be, and 5 Board members proposed for the Kalmar Board.We have also proposed to the AGM a new governance structure for Kalmar as a stock listed company with the shareholder nomination Board included. Then more technically, Kalmar is now report that the discontinued operations as of Q1 '24. Mikko will come back to that, what it means regarding the numbers. Prospectus is planned to be published in May, and then we follow that up with Capital Markets Day events at the end of May.The proposed members of Cargotec Board of Directors, 4 new Board members, as said before, we get an international Board in place with a lot of expertise and knowledge from the industry and really happy to see that proposal then to the AGM.In a similar fashion for Kalmar Board, we have 5 new Board members proposed to the Board of Kalmar and also here an international Board in place with a lot of expertise and knowledge from the industry and from the global business.The structure, no changes here. We are working towards a separation of Kalmar by 1st of July. And we are working towards a solution for MacGregor in the second half of '24. And at the end of the day, you will see then 2 separate stock listed companies listed in Helsinki, in Kalmar and Hiab. And that is then the end result we are striving for.The timeline was announced and showed as part of the Q4 results, no changes here, everything progressing according to plan. We are in the stage of demerger and listing prospectus published then during May. We have 2 Capital Markets Days, 28th and 29th of May for Kalmar and for Hiab, and then AGM on the 30th of May, and then again targeting having a separate listing of Kalmar on the 1st of July.Then to the results, all in all, a stable and good quarter regarding both Hiab and Kalmar. We can see Hiab now 6 quarters in a row on the EUR 380 million level regarding order intake every quarter, so stable and good situation in Hiab.Similarly in Kalmar, we are on a roughly EUR 400 million markfor 3 quarters now in a row. So similarly, they're stable and good. And we are improving and increasing the order book in the case of MacGregor actually quite substantially in the first quarter.We have adjusted the cost structures, I'll come back to that a bit later, both in Hiab and Kalmar, and MacGregor is growing, so there we're actually going in the opposite direction, especially in merchant and service, also adding and recruiting some employees in those 2 areas.Sales down in Hiab and Kalmar due to the order book development and sales in MacGregor continued to improve in the first quarter.Cargotec's total Eco portfolio also here positive by increase of 1%. So all in all a stable and good development in the Eco portfolio as well.Then to the operating profit, as mentioned before, improvement in all business areas. We are in high [ ebb ] on a 16.6% level. Very good first quarter for MacGregor. Scott will come back regarding all the details. In MacGregor, we are on a 6% level. Here, merchant and service above 10% again, like last year in OP, and then we have still losses in the offshore business, taking it down to the 6% overall in the case of MacGregor. But positive development going from EUR 1 million OP Q1 '23 to EUR 11 million in this quarter so a very strong development in MacGregor.Kalmar on a very good stable performance level of 13.5% so all in all, I mean really, really strong good results in the first quarter.This is actually the all-time high first quarter for Cargotec on a 13% OP level. One reason here behind it is of course the cost-saving program that we announced in October last year, and I'll come back to that shortly, how we have been progressing. Then there are of course other matters here. We have been good on the material cost side, on the sourcing side, and managing the supply chains in a very good way in the first quarter.Then, as promised, a few words around the cost saving program. We are then today announcing that we're closing this one. We announced that we're going to strive for EUR 50 million in cost savings. We announced that in October '23. Now, we are so far into the process and the actions have been taken. And we can see that that on group level, we are able to find cost savings of EUR 10 million. Kalmar is actually targeting and actually getting to the EUR 30 million mark and high [ of ] EUR 20 million in cost savings. So this was one part that was helping us on the OP side in the first quarter.Then on top of that, MacGregor is targeting EUR 10 million cost savings as well, mainly then coming from offshore and headquarter cost reductions.So this was in short where we are in Cargotec after the first quarter, and with that, I will give the word to Scott, and Scott will take you through Hiab's Q1.

[Scott Phillips, executive]

Thank you, Casimir. And greetings, everyone, from my side. So in terms of first quarter results for Hiab, we had improved comparable operating profit, certainly sequentially and year-over-year as well. So we're really pleased about that.As Casimir mentioned, we had a stable demand for the sixth quarter in a row, roughly around the EUR 380 million mark. Our sales declined slightly, and that reflects, of course, the declining order book. But at the same time, really pleased as a result of the improved profitability. Our cash flow improved year-over-year significantly. So all in all, a strong start to the quarter.So getting into the order intake development, for roughly the last 6 quarters in a row, we're at about the same level. And we see the same level of developments in the market in terms of demand, in terms of the quote to activity. Our order book is now at EUR 770 million level. So we have good coverage still for the balance of the year. But it's down 31% year-over-year. We had a 1% improvement in orders year-over-year, so that's on roughly still the same level.We see a couple of factors that are still impacting order intake if you think about compared to the peak period. There's still a significant delay caused by the high interest rates in the markets, a little bit of inflation as well. So we see that the decision making in terms of converting opportunities into orders is roughly double the time that it's been in the past. And that continues to be the case through the past quarter.At the same time, they're really pleased that loader crane orders improved year-over-year, driven significantly by a large order that we want in the wind segment. So really pleased with this, but I'd characterize it certainly as a stable level. I haven't seen yet the factors to indicate that the demand curve is expected to go up, but rather looks pretty flat at this point in time.Then in terms of the sales, we had EUR 415 million of sales in the quarter. That's a 4% decline, as I mentioned earlier and mentioned by Casimir, a factor of the order book. More impacted in the loader crane business, but still on a good level. And then quite pleased with the service sales. We're up 4% year-over-year. And that brought us to 28% of overall revenues.Our supply chain still continues to improve with a strong focus in creating collaboration with our suppliers on at least 2 fronts. So we're working hard on supplier development to make sure that we can flex up and down the demand, we can introduce new products effectively. And at the same time that's translated into better and better delivery precision, partially supported by better and better capacity planning. And the third element that I'd add to this is that we've been working hard on the quality side of the equation as well.So overall, really nice development first quarter in terms of sales, and that translated into a good development and a good level in terms of profitability at 16.6%, so a strong start to the year, that's 12% improvement versus last year.2 factors really that are at play here around trying to successfully manage the inflationary pressures that we've seen the last couple of years. So a combination of pricing and productivity, which helped significantly, and that drove the increase in cash flow that we saw in the quarter. So really pleased about that.And then last, I'd like to end as usual with a new innovation. So we introduced, I'm really pleased to announce, our MyHiab app. This is a digital assistant that's designed to make life easier, which is core in our strategy for both the operators as well as our service technicians. It puts the operators in a position to get instant insights about the equipment with easy access to support within Hiab. So we think that this will be a user-friendly opportunity to improve efficiency and the operation of the equipment.At the same time have a good impact on uptime as the operators and the service technicians. Fleet managers will get push notifications when it's time to execute on the planned maintenance service events. So that should all in all make for a much better experience in working with the support that we offer globally. And our objective here is to continue to drive the curve upward in terms of safety and productivity and the overall operating experience for the Hiab equipment. So really pleased about this one.So with that, I'm going to turn the floor over to Sami and take you through Kalmar.

[Sami Niiranen, executive]

Thank you very much, Scott, and good morning, everyone. My name is Sami Niiranen. I'm thrilled to be here as President and proposed CEO for Kalmar.For those that don't know me, let me take a moment to introduce myself before we get into the presentation. I'm a 51-year-old Finnish Swedish citizen with over 25 years of international business experience. For the last 2 decades, I worked with Epiroc and Atlas Copco in various international and senior positions. This has given me a very good understanding of our customer needs and challenges and why I think Kalmar is so well positioned to address them.The reason why I joined Kalmar is because I saw significant opportunity in this business to address some key market needs. The first is around the increasing demand for more sustainability. And the second is providing innovation support and efficiencies across the logistics space. Kalmar is uniquely well placed to address those challenges facing the market. That is what made me join this company today. And that is what gets me excited about the future of Kalmar.So let's now move on to our first quarter results. So building on a strong year in 2023, our momentum continues with a good start and continued strong profitability into this year. Our commitment to operational excellence is showing results. Solid and successful execution continued both in commercial and operational excellence, as well as delivering a strong cashflow in quarter 1.Demand was sequentially stable from the fourth quarter and Kalmar's orders received amounted to EUR 402 million. The business environment in which Kalmar operates is complex and underlying demand drivers are slightly mixed. However, many of our customers and partners are performing well.Demand for mobile equipment used in industries and small and mid-sized terminals remained good, but we continue to see delayed decision-making in larger equipment orders and destocking in the distribution customer segment.In the first quarter, Kalmar's orders received decreased by 15% from the comparison period while service order intake increased. As you know, our business is at the forefront of innovation in the industry. In the first quarter, despite the continued delay decision-making in orders of larger equipment, we secured some major orders which positioned us well for continued growth.Examples of the major orders included 2 fully electric and 8 hybrid straddle carriers to a customer in the Netherlands, and 2 new electric order [ strads ] and retrofitting of 2 existing hybrid straddle carriers to a customer in the U.S.Our order book decreased by 5% from the end of 2023, totaling EUR 971 million at the end of the first quarter. And then Kalmar sales declined by 10% from the previous year and amounted to EUR 439 million, impacted by lower order intake in the second half of last year.Our service sales decreased by 7% and totaled EUR 137 million, representing 31% of sales. Eco portfolio sales continued growing and improved 10% year-on-year, equaling to 40% of Kalmar total sales. We also had a strong cashflow driven by high profitability and a reduction of net working capital.So our profitability continues strong, driven by continued improvements in both commercial and operational excellence. Kalmar's comparable operating margin increased to 13.5% and amounted to EUR 59 million. Margin improvement was also supported by cost savings actions that we launched in quarter 4 last year, and these actions offset the decline in sales. And they are now to a large extent implemented and we foresee EUR 30 million annual savings for Kalmar instead of the original estimate of EUR 20 million.So this summarizes our first quarter. I'll now hand it over to you Mikko.

[Mikko Puolakka, executive]

Thank you, Sami, and good morning also from my side. Let's have a look on MacGregor's result, and like Casimir already elaborated, MacGregor had a nice development in the first quarter. Another great quarter with a strong order intake, EUR 267 million of orders, that included also EUR 150 million order for multiple merchant vessels.The quarter 1 orders in MacGregor demonstrate MacGregor is really strong offering in various merchant vessel categories, like the car carriers, which have been very active now in quarter 1.The merchant equipment and services represented roughly 90% of MacGregor's total quarter 1 order intake. So actually, the offshore is a rather small portion of the overall MacGregor business. MacGregor's order book is now over EUR 1 billion and this is roughly -- out of that roughly 92% is related to merchant vessels and services. So the offshore equipment order book is only EUR 87 million. MacGregor's sales grew 29% and this is very much driven by the last 2 years strong merchant order intake.MacGregor had a significant profitability improvement in the first quarter from EUR 1 million to EUR 12 million comparable operating profit. And this is very much supported by the merchant vessel related revenue growth and as well as also cost savings. So costs were basically flat and revenues grew significantly.However, the offshore business is still loss making. We have a handful of offshore projects, which are in the late delivery phase, but unfortunately still generate losses. And these projects we aim at delivering during 2024.We have also a dispute related to a larger equipment delivery, which is for a monopile installation vessel. So all in all, in the coming quarters, our focus in MacGregor is very much on completing these offshore projects and turning also the offshore business to the positive numbers.It's good to note that the core of MacGregor is in a very good shape. Excluding the offshore business, MacGregor's quarter 1 comparable operating profit would be actually 11%, so on a very good level. So in the coming quarters, we continue with the MacGregor offshore turnaround activities. And in addition to that, we aim at delivering another EUR 10 million cost savings during 2024.Before going to Cargotec consolidated financials, couple of words from my side about reporting Kalmar as a discontinued operations. As you have noticed, our external reporting has changed quite significantly now in quarter 1.As the Kalmar demerger is highly probable during the next 12 months time, i.e., we aim at listing Kalmar on 1st of July, Kalmar is reported as discontinued operations from quarter 1 onwards, and this is according to the IFRS regulations.The idea of the discontinued operations is to separate from Cargotec's continuing operations, i.e., from Hiab and MacGregor, all such revenues and costs which would not exist when Kalmar is no longer a part of Cargotec.If we look at the discontinued operations, orders and sales, those are actually one to one with the Kalmar segment as you have seen. The differences between Kalmar segment and the discontinued operations arise in profitability.There are basically 3 drivers for the profitability difference. First of all, Kalmar depreciations are stopped in the discontinued operations reporting. This is roughly EUR 7 million comparing to the Kalmar business area reporting.Then some Cargotec group overheads are also allocated to the discontinued operations. These are overheads which would not continue after the demerger.And then thirdly, all Kalmar demerger related costs are reported under the discontinued operations.The result of the discontinued operations is calculated up to the net profit level, so to the lowest profitability level, in other words, after financing costs and taxes. However, I would like to emphasize that this discontinued operations does not represent a standalone Kalmar or remaining Cargotec kind of full profitability, not from P&L point of view and not also from the balance sheet point of view.Cargotec's consolidated income statement as you have seen in our entry report is shown also on this page that describes the financials of continuing operations, so those are the kind of officially reported numbers for the quarter 1. We calculate separately a net profit for the continuing operations, this is EUR 47 million for quarter 1. This profit excludes all Kalmar related income, operating costs, financial expenses and taxes as described earlier.However, as Kalmar is still part of Cargotec, we still need to calculate the consolidated net profit of Cargotec. And for this purpose, the net profit of the discontinued operations is added as one line item only on Cargotec's P&L, as is shown here with the red rectangle. So the discontinued operations net profit EUR 34 million, that consists of Kalmar segment operating profit with those adjustments, which I described on the previous page, then deducted by financial expenses and taxes.So when you compare the continuing operations versus the Cargotec total, there is approximately 40% difference in orders and sales. And this difference is the Kalmar part, i.e., the discontinued operations. The continuing operations meaning, here at MacGregor, order intake and sales growth are very much driven by the good development in MacGregor.Continuing operations comparable operating profit improvement is driven by MacGregor turnaround as explained earlier, and then also Hiab's solid work to manage inflationary pressures and Hiab's increasing comparable operating profit percentage.Cargotec's total items affecting comparability were EUR 17 million, and out of this EUR 2 million is related to MacGregor restructuring. The rest of the items affecting comparability are related to Kalmar demerger, and therefore those are not shown under the continuing operations.Operating profit percentage is the same for both reporting dimensions. However, please note that this is just a coincidence. And Cargotec's ROCE was all time high, 21%. This was highly contributed by all 3 BA's good profitability development. And also, the MacGregor's turnaround is also clearly visible now in Cargotec's return on capital employed.Looking at the cash flow, we had a really strong cash flow in quarter 1, like also in the last 3 quarters. During the last 3 quarters on Cargotec level, we have generated EUR 650 million cash.For the quarter 1, there were basically 2 main drivers for the strong cash flow. First of all, the solid EBITDA in all 3 business areas, and then the net working capital reduction, especially in Kalmar and MacGregor, very much driven by the receivables collection.Cargotec has a very strong balance sheet with now only 3% gearing and leverage 0.1x of EBITDA. We have repaid actually now in March a EUR 100 million bond and we do not have any significant debt repayments in 2024 anymore.As Casimir mentioned, we have received the consent from the bondholders. And out of the total Cargotec debt, we split roughly 50-50, the outstanding debt between Cargotec and Kalmar. And we have received all consents for the demerger related debt arrangements by now. So both companies, Cargotec and Kalmar, will have a very strong balance sheet as of July 1, 2024.Last but not least, our outlook for the 3 businesses. I would like to remind you that the outlook has been defined on the basis of the business area reporting in order to keep it relevant throughout all these reporting changes, what I have described earlier. So please continue to follow also the BA results. Those are comparable between this year and the previous years.And that's our outlook for here. We estimate comparable operating profit to be above 12% and for Kalmar above 11%. And then for MacGregor, we expect the comparable operating profit to be above last year's EUR 33 million.So with that, then I believe we have the time for the Q&A. And before that, just a reminder that like Casimir said, we have the Capital Market Days for Hiab and Kalmar at the end of May 28 and 29 and just before the AGM. So all are warmly welcome to these events and please register in time before 8th of May.

[Aki Vesikallio, executive]

Thank you, Mikko. Thank you, Casimir, Scott and Sami. Please come back to the stage and then we are ready for the Q&A session.

[Operator]

[Operator Instructions] The next question comes from Panu Laitinmaki from Danske Bank.

[Panu Laitinmaki, analyst]

I have a couple of questions. Firstly, starting from the margins, which were very good. Is there -- was there anything exceptional in Q1 that you would expect to kind of fade away, given that the guidance that you kept looks a bit cautious relative to what we saw in Q1? So was the pricing exceptionally good? And is there anything that will turn in the coming quarters?

[Scott Phillips, executive]

Yes, thanks for the question. Just so I can get started from the high upside. On no exceptional help in the quarter in terms of the margin on the high upside, yes, specifically then about pricing. We certainly saw in throughout '23 our level of discounts as you would expect with the pricing pressure and the expectation of our costs coming down and that translating pricing was higher year-over-year versus '22. So we expect to see relatively a stable situation in pricing with a bit of pressure potentially in the second half of the year. But at the same time, we certainly are looking towards the revenue curve to start more matching with the order intake that we've had over the past 12 months, and which is what we talked about in Q3 results, which triggered the cost savings programs that we executed on. But that's from the high upside.

[Sami Niiranen, executive]

And if I continue on the Kalmar side, of course, as mentioned in the presentation, we got a lot of contribution from the cost savings actions and activities that were launched end of last year, that helped our margin in quarter 1.

[Panu Laitinmaki, analyst]

But can I just ask a follow-up on the guidance? So I mean, it still looks a bit cautious. So is there kind of -- what are the main drivers behind this guidance? Or is the thinking just that you will give a guidance when the companies are split anyway?

[Scott Phillips, executive]

Yes, we're leaving open the potential for revising guidance yet later in the year. We're still cautious about the order intake, as I mentioned earlier. And so, if you think about back to in Q3, what we talked about was in the case of Haib, we were talking, depending upon how the developments go, that at least 12% was in, let's say, a worst-case scenario for the year. And that's still the position we're taking now until we have time to see a bit more of the demand outlook.

[Sami Niiranen, executive]

And maybe on the Kalmar side, of course, we are 1 quarter down the road here, and it still remains quite a mixed demand -- mixed picture with the demand drivers, of course, and the guidance is for the entire year, 2024.

[Panu Laitinmaki, analyst]

Just a final question. On the MacGregor, it seems that the project losses are still continuing. Does this impact your thinking of when do you expect to be able to sell it? You have talked about second half this year earlier, but should we think about '25 now if you still have the project losses there?

[Casimir Lindholm, executive]

Regarding the timing of starting a sales process for MacGregor, no changes. The target is to start that in the second quarter and the target is still to have that process finalized during the second half of '24. So no changes there. Both the merchant and the service business performing on a very good level. And we have roughly 10 projects in the offshore still to be delivered that are loss making and challenging for us and one of them is a larger one. But of course, looking at the order backlog for MacGregor over EUR 1 billion, only EUR 89 million of that is offshore. So the offshore challenges are getting smaller and smaller each quarter. And that's, of course, important for us and of course, important for the sales process of MacGregor. So no changes there. And actually, both merchant and service performed at least or even a notch higher in Q1 compared to last year.

[Operator]

The next question comes from Tomi Railo from DNB.

[Tomi Railo, analyst]

2 questions on MacGregor. Sorry, if I missed this, but how much were the offshore bad project related sales in the first quarter?

[Mikko Puolakka, executive]

The offshore, basically offshore related revenues were roughly 10% of the total MacGregor quarter 1 revenues. So it's a fairly small piece of the business. However, the losses were close to EUR 10 million in quarter 1. So without that, MacGregor profitability would have been 11% instead of the 6%.

[Tomi Railo, analyst]

And the second question, if you could comment your overall or maybe even divisional service profitability development. Last CMD you mentioned 19.6% for core. Any updates on that?

[Mikko Puolakka, executive]

We will actually come back to the services related topics in our Capital Markets Day. So if you don't mind waiting for a couple of weeks, so we would come back with more details there.

[Casimir Lindholm, executive]

Regarding maybe the targets, I mean, on a Cargotec level, the profitability targets are not valid now going forward. And then we have, as Mikko referred to in the Capital Markets Day, you will see then the long-term targets for both Hiab and Kalmar going forward.So by end of May, we'll have a full answer to your question. Actually, even before that. So for Kalmar's sake, those targets are in the prospectus and prospectus is due around mid-May.

[Operator]

The next question comes from Erkki Vesola from Inderes.

[Erkki Vesola, analyst]

Just regarding MacGregor's profitability, did you make a say that it would have been, okay, 11% excluding offshore, but do you see that as a sustainable level going forward? I mean, back in the day, MacGregor made some 13%, 14% EBIT margin, at least in 2010, 2012. So where do you see your targets? Of course, this is all subject to cycle phase, but anyway.

[Mikko Puolakka, executive]

Yes, I mean, MacGregor has been enjoying, like I said, a couple of years, a good order intake, mainly coming from the merchant and services. And like this quarter 1 showed, with this kind of revenues and eliminating the offshore losses, I don't see a reason why MacGregor could be a 2-digit comparable operating profit business. At the moment, it's unfortunately diluted by the offshore losses, but without the offshore, like quarter 1 showed a nice profitability potential for the business

[Casimir Lindholm, executive]

Yes, last year, I mean, service and merchant was 10% OP level in '23, and now you see the 11% here in the first quarter. So in that sense, historically in '23, and now early '24, we are on the 10%, 11% level.

[Mikko Puolakka, executive]

And there was a--

[Erkki Vesola, analyst]

Then please remind me, I may have missed it, but where do you see that the offshore project would be delivered totally?

[Casimir Lindholm, executive]

I mean, as mentioned, we have roughly 10 projects to be finalized to a large extent this year, one bigger one. And most of these will be finalized during this year. So when we enter into a sales process of MacGregor, of course, the tail of offshore is quite minimal.

[Erkki Vesola, analyst]

So we talk only about a few millions regarding '25 in terms of revenue?

[Casimir Lindholm, executive]

Yes, a few projects left in '25, so it will be a really small portion of the total MacGregor order backlog and sales going into '25. And we haven't taken any new orders since Q1 '23, any orders that are of this project pilot type of projects. We haven't been entering to those RFQs since March '23.

[Operator]

There are no more questions at this time, so I hand the conference back to the speakers.

[Aki Vesikallio, executive]

Thank you for the great questions and the great answers. Just a reminder to register to our CMD. The last day for registration is 8th of May, and our second quarter results will be published 8th of August, a little bit later this year due to the planned separation of Kalmar. Hope I see you all in May. Thank you.

[Casimir Lindholm, executive]

Thank you.

[Mikko Puolakka, executive]

Thank you.

[Scott Phillips, executive]

Thank you.

[Sami Niiranen, executive]

Thank you.