IR Blog: You ask, we answer: Answers to investors' questions

Market environment and financial development

Q: How would you describe the overall business environment at present?

The growth of our industry is supported by megatrends global growth & economic development, sustainability and digitalisation. In addition, it is prognosed that the main demand drivers would also grow: the number of containers handled at ports globally for Kalmar, construction activity for Hiab, and the level of merchant ship contracting for MacGregor.

On the other hand, increased uncertainty in the global economy, global component shortages as well as longer periods and rising prices in transportation are casting a shadow. The customer interest in our solutions has still remained on a good level and, for the most part, we have been able to pass on the impact of increased costs to customer prices.

Q: Sales and result development compared to previous years?

As per our guidance, we expect our comparable operating profit for 2022 to improve from 2021 (EUR 232 million).

Q: How will the worsening Covid-19 situation in China affect Cargotec's business globally? Take the Shanghai lockdown as an example.

The situation gives reason for concern with ramifications for the entire global economy and supply chains. At the moment, it is not yet significantly reflected in our operations, but the closures can affect the component availability negatively in the coming months.

Kalmar's assembly unit near Shanghai was closed in April, but operations have been ramped up as the second quarter progresses. The major assembly sites for both Hiab and Kalmar are located in Stargard, Poland. China accounted for about five percent of our 2021 sales.

Q: With the interest rates and inflation on the rise, the economic cycle seems very unstable at the moment. Many companies could collapse or wither as interest rates rise and the economy freezes. What is the situation with Cargotec's loan portfolio?

We are following the development of the economic situation actively, including the effects of inflation to our key markets. We take the rising component, material, freight and energy costs into account for example in pricing and sourcing.

Our financial position is strong and we do not foresee rising interest rates to have a major impact on it. Cargotec has no significant maturing interest-bearing liabilities before 2023. In addition, with a long-term liquidity reserve of almost EUR 650 million, our liquidity is strong. At the end of March 2022, the gearing ratio was slightly below 38 percent.

Q: The current economic situation appears unstable, even weak. To support the profit generation and other related elements (i.e. jobs), is the Cargotec leadership - Board of Directors and the Leadership Team - for its part committed to moderate salary development and benefit cuts?

Cargotec follows good corporate governance. We actively monitor the development of our operating environment, including the general economic development. If necessary, we will react as required by the situation to ensure the operation of the company.

Remuneration at Cargotec is managed through clearly defined processes and involves the Annual General Meeting of Shareholders, the Board of Directors and the Board’s Nomination and Compensation Committee. Our remuneration policy reinforces Cargotec’s values and ethical principles, aligns remuneration with the successful delivery of our strategy and creating long-term shareholder value.

Remuneration is characterised by five key principles, presented at the company remuneration policy. In brief the principles are as follows: compensation is aligned with strategic and business plans; we reward performance and behaviours that reinforce the underlying shared performance culture value; individual performance is valued against contributions to business results; compensation and benefits are designed to optimise the needs of both shareholders and employees, the compensation and benefits programmes are fair and are understood and valued by employees.

Q: Which external business development indicators are important to you (global freight volumes, for example)? From what sources do you monitor these? How do you expect these metrics to develop over the next coming years?

The most important demand drivers we are monitoring are the number of containers handled in ports for Kalmar, and construction activity for Hiab. For MacGregor, we are monitoring the development of new merchant ship orders and the order volumes for new vessels in the offshore sector. In these we utilise the materials of the following external organisations: Drewry Container Forecaster (Kalmar), Oxford Economics (Hiab), Clarkson (MacGregor).

We also closely monitor the usage data generated by our networked equipment. We report the latest information in our interim reports. Due to the global situation, the upward trend in forecasts has declined in recent estimates, but is still suggesting growth.

Q: Why is the automation development in ports so slow? Would you estimate this development to speed up during the next few years?

We have been disappointed with the slow automation of ports, and with our renewed strategy, the focus of our business is increasingly shifting to smaller ports, logistics centres, various industries and local transportation.

Right now, there is no time for major renovations in the ports. Although the benefits of automation have already been widely acknowledged, port utilisation rates are now so high that it is difficult to shut down a port - or even one terminal at a time - for a few months or even a year in order for the automation process to take place.

Automating a new port (greenfield) would be easier, but few are being done these days: most of the development work would be done in the existing ports (brownfield). In addition, customers are carefully considering large investments, and their implementation may be slowed down, for example, by negotiations with labour unions.

Q: I have considered Cargotec to be a fairly risk-free investment but now it has been revealed that many large Finnish companies have huge country-related risks in countries such as Russia, China, Turkey and Brazil who are blatantly violating international agreements. Does Cargotec have large amounts of assets in these high-risk countries?

If Cargotec's holdings in other countries would appear to be risky, do the company's leadership team and board of directors assume their responsibilities, for example by denying their bonuses and options or other benefits (based, in most cases, on good management, governance and performance)?

In terms of Russia, we have already disclosed that in 2021, Russia’s share of total sales was below 1 percent. We do not have any assembly operations in Russia, and we have had about 50 employees there. Our sales to Russia and Belarus have been suspended and we are currently closing our operations in Russia. In our Q1 2022 interim report we said that we have booked an EUR 10 million impairment provision to assets that relate to Cargotec's business in Russia.

As for the other mentioned countries, Hiab has relatively small operations – Argos – in Brazil while Kalmar has an assembly unit near Shanghai in China. China accounted for 5 percent of Cargotec's total sales in 2021. Turkey's share of our total sales in 2021 was not significant. In accordance with our risk management practices, we monitor the situation in different countries and react actively if needed.

Refocused strategy

Q: Now that the decision to withdraw from the heavy crane business (RTG, ARTG, ASC, STS) has been made, does this also mean detachment of the respective automation solutions?

We will continue to have a strong automation offering in the straddle carrier and shuttle carrier business. In addition, we are currently developing smaller robotic container handling equipment and will also utilise our automation expertise in Hiab's product development. We will be withdrawing from Kalmar’s heavy crane business and are not currently taking new orders, but the plan is not yet complete in all details.

Q: If the refocused strategy would leave Cargotec with Hiab as well as Kalmar reachstackers and forklifts, are you not afraid of becoming a “small player” in the eyes of port operators when other actors offer a full range of container handling equipment, including heavy equipment.

We do not believe in such development, as large port operators rarely buy all their equipment/services at the same time and combining equipment from different suppliers in different parts of the port is not a problem. In addition to reachstackers, empty container handlers and forklifts, Kalmar continues to offer shuttle and straddle carriers, Bromma spreaders and extensive lifecycle services.

The customer can continue to buy Kalmar's straddle carriers and order heavy cranes from another provider. We are the market leader or strong runner-up in all the segments in which we are present. Focusing on our core offering will allow us to further develop our products, which will further increase our competitiveness in the future.

Q: Is the heavy port crane services business also for sale?

We are currently assessing whether the withdrawal from heavy port cranes will take place through the sale of the business or, for example, ramping down the business. If the service business is not sold, the services would continue with these prospects. Cargotec's businesses already service third party equipment.

Q: “Along with the strategy refocus, we announced our plans to exit Kalmar's heavy port cranes business, and started an evaluation of strategic options of MacGregor.” An update of this would be appreciated.

With regards to Kalmar's heavy port cranes, we can say that we have decided to withdraw from the business, but we are currently assessing whether this will be done, for example, by selling or closing down the business. In May, we also announced plans to merge Kalmar Automation Solutions and Kalmar Mobile Solutions. Michel Van Roozendaal, the current director of Mobile Solutions, was chosen to lead the design.

The evaluation of strategic options of MacGregor including a potential sale of the business has also begun. The evaluation covers the whole business area inclusive of its merchant, offshore and services businesses. We will provide more information on both processes as they progress.

Q: Is Cargotec prepared for a situation in which companies that are well suited to or complementary to its business would be available for acquisition?

Our target is to grow faster than the market in our core and adjacent businesses. We focus on organic growth but are also actively investigating possibilities for acquisition. As announced in the refocused strategy on 30 March 2022, Cargotec is planning to accelerate M&A activities, especially in Hiab.

Sustainability

Q: Does Cargotec have ongoing or planned actions for development that would reduce the energy consumption and production emissions of its products? Climate topics are coming up again, so it would be good to have some competitive advantage on the climate side as well.

Our vision is to become the global leader in sustainable cargo flow. Cargotec’s Mission Climate programme was founded in 2021, with a goal to reduce the carbon footprint of our entire supply chain.

Our R&D activities focus on investments in electrification, robotics and digitalisation. The fact that we can offer electric products in all of its product categories is a sign of our determined development work. The sales of our eco portfolio is being reported in our quarterly reports. The portfolio consists of products and services, for example the fully electric equipment, that enhance customers’ sustainability with tangible environmental benefits. In the first quarter 2022, the eco portfolio sales represented 24 percent of our total sales.

Q: Do you disclose the sustainability issues regarding suppliers and raw material sourcing in your production chain? For example, do your products have metal whose origin or country of production is unethical in terms of ethical practices?

Cargotec is committed to responsible business operations and the sustainable management and development of its operations. We take care of the responsibility of our entire value chain and we expect the same from our suppliers. All Cargotec employees and third parties involved in the company's procurement activities must comply with Cargotec's Code of Conduct. We report on this topic in our Annual Report, e.g. in the Statement of Non-Financial Information of the Board of Directors' Report and in a separate GRI Index. More information is also available on Cargotec's website.

Merger with Konecranes

Q: The merger with Konecranes fell through. Does this have large implications in terms of company activities and results? In the near future, does Cargotec have other acquisitions in the pipeline?

We announced our refocused strategy right after the announcement of the merger being cancelled. Our refocused strategy gives us a good position to grow our business through the industry trends electrification, robotics and digitalisation.

Active monitoring of the market environment and continuous mapping of potential acquisitions has always been part of Cargotec's operating principles, and with the new strategy, the acquisition programme has been further accelerated. Our financial position is strong, providing us excellent opportunities to react actively when opportunities arise.

By the end of the first quarter, Cargotec had booked EUR 66 million in merger-related expenses, of which EUR 9 million have been booked in 2022. The final costs of the merger will be reported as they become available. Cargotec estimates that the costs associated with the merger will no longer increase substantially. Throughout the merger planning period, Cargotec and Konecranes operated separately as fully independent companies.

Q: The Konecranes merger negotiations burdened the result; however, can the materials collected during the negotiations be used to benefit the future progress of the refocused strategy?

All experience is useful. For example, many of our employees and leaders were closely involved in the merger process, which has further enhanced their expertise.

Q: The merger between Cargotec and Konecranes fell through as competition authorities opposed the proposed arrangement. If this scenario would have been a good one (and perhaps almost necessary) in terms of the future of both companies, what does the future look like in the present situation? Will there be other acquisitions/mergers?

We announced our refocused strategy right after the announcement of the merger being cancelled. We are confident that our refocused strategy gives us a good position to grow our business through the industry trends electrification, robotics and digitalisation.

Cargotec's strategic breakthrough objectives are sustainability and profitable growth. Our target is to grow faster than the market in our core and adjacent businesses. We focus on organic growth but are also actively investigating possibilities for acquisition and mergers.

Active monitoring of the market environment and continuous mapping of potential acquisitions has always been part of Cargotec's operating principles, and with the new strategy, the acquisition programme has been further activated. Our financial position is strong, providing us excellent opportunities to react actively when opportunities arise.

Q: Pros and cons due to the merger cancellation?

The Board of Cargotec is convinced that the merger would have created substantial value for the entire industry as well as shareholders by improving sustainable material flow. The combination would have created a strong European company enabling accelerated shared abilities to innovate without harming competition.

Following the cancellation of the merger, for example, the associated synergies will not be achieved and we have so far recorded EUR 66 million in merger-related costs. On the other hand, with our new strategy, we can ensure an accelerated but controlled transition to a more profitable business that better meets the demands of the future. By focusing on our core businesses, we will be a more focused company with two similar and very profitable businesses.