Capital Markets Day 2017 convinces that Cargotec has great service and software potential
Cargotec’s Capital Markets Day was held on 12 September 2017 in London. The event offered valuable insight on how Cargotec will achieve its strategic targets as well as the recently updated financial targets.
The main speakers CEO Mika Vehviläinen, Kalmar’s president Antti Kaunonen, Hiab’s president Roland Sundén, MacGregor’s president Michel Van Roozendaal and CFO Mikko Puolakka, as well as the business management in break-out sessions, presented detailed plans on how Cargotec will deliver results on the key strategic must-win battles, which are services, digitalisation and leadership.
The CMD presentations included a lot of interesting new information to the audience. For example, CEO Mika Vehviläinen added further colour on Cargotec’s software sales ambitions by revealing that the target is to double the software sales in the next 3-5 years. The annual historical software sales figures were also given out, starting from 2013. Investors and analysts will now also have more tools to analyse Cargotec’s service offering, as all the business area Presidents presented how the service sales is split between different types of revenues. Kalmar’s President Antti Kaunonen gave an update on the number of port automation prospects: even though the number of prospects has increased from 70 to 90 since the last CMD at the end of 2015, the customers’ decisions to go ahead have been postponed. CFO Mikko Puolakka laid out a detailed list of components which will contribute to lift Cargotec’s operating profit from the current 7.5% level to the targeted 10%.
CEO Mikä Vehviläinen went through Cargotec’s impressive track-record after 2013, which includes doubling operating profit since 2013. In addition, he presented the strategic must-wins and what have been the main achievements as well as the related next steps and future ambitions. In digitalisation, Cargotec has a target to double software and digital services revenues during the next 3-5 years. In services, the future ambition is to become benchmark in services in our industry, and in leadership, the aim is to invest in world-class leadership and make it a competitive advantage for Cargotec. The business area presidents Kaunonen, Sundén and Van Roozendaal then described what is the businesses' role in achieving the ambitions.
Service business is the key for accelerating growth in the medium term. In digitalisation, we will deliver customer value and drive the industry towards better optimization and sustainability with software, automation, data and collaboration platforms. Currently, Cargotec’s software sales (EUR 165 million during Q3/16-Q2/17) are coming from Kalmar’s Navis and port automation software sales, but MacGregor and Hiab have excellent potential as well.
Cargotec’s target is to increase the service and software sales from the current level of EUR 1.04 billion (Q3/16-Q2/17) to EUR 1.5 billion in 3-5 years. Vehviläinen explained that in order to reach the target, the following actions will be implemented: We will increase spare parts capture rates, boost service contract attachment rates, strengthen our service network and introduce new service products. For instance, Kalmar is focusing on maintenance contracts, and Hiab is increasing the service sales by building customer brand loyalty and equipment sales with proactive and high-quality customer service. Watch Sundén’s brilliant example of HiConnectTM at CMD webcast, starting from 1:31:08.
Another important theme in the event was the M&A potential, on which CFO Mikko Puolakka presented further details. The role of M&A spending of cash flow generation is becoming more significant going forward. Key criteria for acquisitions are the contribution to Cargotec’s 15% ROCE target, recurring business and increasing the potential for services. Each business areas have their own focus areas. Kalmar focuses on service footprint expansion and software offering, Hiab on expanding geographical presence both in service and product offering, while MacGregor is looking for M&A opportunities on distressed assets and software as well as intelligent technology.
As much as 60 participants, consisting of investors, analysts and media representatives, had registered to the event. The audience was especially interested in hearing more information on the potential in the Service and Software business, Kalmar’s automation offering, the profitability targets as well as the M&A potential.