IR Blog: Frequently asked questions about Cargotec's Q1/2020

What is your expectation for Q2 and FY 2020 comparable EBIT?

On 27 March 2020, Cargotec updated its outlook for 2020 due to the coronavirus pandemic and related political decisions and administrative restrictions. In the current exceptional situation Cargotec estimated that it is not able to give a guidance for the year 2020. Cargotec publishes a new guidance at a later date.

Previous guidance (given on 6 February 2020): Cargotec expects its comparable operating profit for 2020 to improve from 2019 (EUR 264 million).

In the second quarter, there are significant challenges in relation to deliveries and demand. Cargotec estimates a significant decline in orders, sales, comparable operating profit and cash flow in the second quarter compared to the second quarter of 2019. During the first weeks of April 2020, Cargotec’s orders received have significantly decreased from the comparison period. Due to the challenging operating environment, visibility towards the end of the year is currently weak.

What are the assumptions for Q2 and 2020?  

In the second quarter, there are significant challenges in relation to deliveries and demand. Cargotec estimates a significant decline in orders, sales, comparable operating profit and cash flow in the second quarter compared to the second quarter of 2019. During the first weeks of April 2020, Cargotec’s orders received have significantly decreased from the comparison period. Due to the challenging operating environment, visibility towards the end of the year is currently weak.

Container throughput is expected to decrease according to Drewry’s forecast (-3,4% in Q2 and Q3, +8,6% in Q4, -0,5% FY 2020).

In its baseline forecast scenario from early March, Oxford Economics forecasts that one of Hiab’s demand drivers – construction activity in the US and Europe – would grow by about two percent in 2020 (Oxford Economics, March 2020). However, if the coronavirus would cause a global recession, growth in the US is projected to slow to 0.5 percent, while in the EU15 countries it would remain at the 2019 level (Oxford Economics, Construction, March 2020). An even larger economic contraction has also been anticipated. 

Clarkson forecasts that merchant ship contracting will decrease close to the historically low level of 2016. In the offshore sector the amount of new vessel contracting is still expected to remain at a low level.

What kind of scenarios do you have for 2020?

We have modelled a number of different scenarios and follow the situation tightly. We have taken rapid actions as required and start additional actions if needed.

Why did Kalmar's Q1 comparable EBIT decrease by 21%?

Kalmar’s comparable operating profit decreased due to a less profitable sales mix and due to supply chain challenges in project businesses. Kalmar’s less profitable sales mix was the result of an increased share of project deliveries in total sales.

Why did Hiab's Q1 comparable EBIT decrease by 11%?

Hiab’s operating profit decreased due to lower volumes.

Is there a risk for MacGregor goodwill impairment?

Due to the current small excess value of MacGregor's recoverable amount compared to the book value, the amount to be written off under the scenarios considered in our sensitivity analysis would be significant; EUR 142 (31 Dec 2019: 29) million in the first scenario, EUR 235 (31 Dec 2019: 133) million in the second, and EUR 337 (31 Dec 2019: 274) million in the third. Although MacGregor's recoverable amount to some extent already incorporates sensitivities based on the scenario analysis applied, the risk of impairment is significant in the current economic environment, and the results of the sensitivity analysis indicate that the amount of impairment may be significant if the crisis turns out to be worse than currently estimated.

How did Cargotec perform in the financial crisis and how is Cargotec now different from that time?

Service sales have increased by 22% compared to 2008. In the financial crisis, service sales dropped from EUR 871 million in 2008 (26% of sales) to EUR 690 million in 2009 (27% of sales). In 2019, Cargotec’s service sales were EUR 1,062 million (29% of sales). Software sales were EUR 168 million in 2019, while they were EUR 0 million during the previous crisis.

We have an asset light operating model with less component manufacturing than during the financial crisis.

This time we don’t have the long order backlog of MacGregor. In 2008, MacGregor’s EBIT excluding restructuring costs was EUR 84 million and EUR 105 million in 2009 and MacGregor’s strong order backlog supported our business. Offshore business was acquired after the financial crisis.

Why was relative profitability so low during Q1/2020?

MacGregor and Kalmar Automation Solutions, which have lower or negative operating profit account now 31% of total sales while in Q1/19 they totalled 27%.