Frequently asked questions and answers about Cargotec's January-September 2019 interim report.
What is your expectation for Q4 comparable EBIT?
We expect the full year comparable profit to improve from 2018.
How did the market develop during the quarter?
The demand for Kalmar’s mobile equipment stabilised. Customers are increasingly interested in port automation and there is trust in the automation concept. Decisions are carefully considered and customers target the investments mostly to phased renewals of existing ports.
The demand for Hiab’s load handling equipment was good. Construction activity increased in Europe and grew slightly in the US. The demand for Hiab’s services improved.
For MacGregor, the market continued to be weak.
Are there any changes on the market?
As Q3 showed, the demand is on a good level. Market uncertainties have increased and it is more difficult to predict customers decisions due to the trade war, Brexit, sanctions and downgrading of macroeconomic growth projections.
Your order intake declined by 7% in Q3. Are we starting to see a market slowdown?
Orders received decreased by seven percent from the comparison period and totalled about 860 MEUR. Decline came from Kalmar Automation and Projects, where the orders can be lumpy. Also Kalmar Mobile Equipment orders declined, on its selected product segments against a very high comparison period. Service orders received increased by four percent and totalled slightly over 260 MEUR. However, the good development continued at Hiab (+4%), MacGregor (+10%).
Organic sales growth in Q3 (excluding M&A and currencies)?
Some 62 MEUR or 8% when we eliminate acquisitions and divestments. Acquisitions brought about 35 MEUR sales in Q3/19, divestments represented 0 M€ in Q3/18 sales.
What are your expected savings from the group wide 50 MEUR programme in 2019?
We expect around 10 million new savings in 2019, mainly from the indirect procurement activities. In January–September 2019, the realised savings from the programme amounted to around 9.5 MEUR and cumulatively since the beginning of the programme 30.7 MEUR.
How much restructuring costs can we expect for 2019?
We estimate that the restructuring costs for 2019 at the level of 75 MEUR, this would be approximately 50 MEUR for the Q4/19. In Q4 most of the restructuring costs are related to the restructuring of MacGregor offshore operations and TTS integration.
Why did gross profit margin decrease from 24.4% to 23.3% in Q3/2019?
The Cargotec gross margin decline comes from MacGregor, where we have had project cost overruns, low capacity utilisation and lower sales margins due to the weak market situation.
Economy in China is slowing - how can that impact Cargotec?
We want to be present more strongly in China, but at the moment China is a relatively small part of Cargotec, and represented 6% of Cargotec sales in 2018 (7% in 2017). This was 196 MEUR. The China business shares for the BAs (2017 in brackets):
Kalmar 5% (6%)
Hiab 1% (1%)
MacGregor 16% (22%),
China’s growth is slowing, and local customers there prefer currently local suppliers. In Kalmar, we have a good Mobile Equipment installed base in China and it offers good potential for future replacement investments as long as the terminals are in use.
In MacGregor the China sales volume is not only driven by the Chinese economy, but is due to the shipbuilding industry in China. End customers may come from anywhere in the world.
Even if the growth in China would slow down, it is important to remember that the underlying market size is significant and as the logistics operations are running, certain replacement investments are needed also going forward.
Kalmar Q3 orders received decreased 19% y-o-y, what was the reason for that?
Some orders were exceptionally high - tens of millions - during the comparison period. Orders declined both in automation solutions projects and mobile equipment.
We have recognised a new transformational shift in thinking. The customer interest towards port automation has increased, but they consider their decisions carefully, targeting their investments mostly to phased renewals of existing ports (brownfields). Currently we have ten automation projects in delivery phase.
How do you see Kalmar's market outlook?
There is continuing interest in automation solutions and the customers genuinely trust the automation technology nowadays. Investments are large and long-term so customers consider decisions carefully. We work on multiple sales cases.
Market for mobile equipment has levelled out. The visibility is weak.
In Navis we are also working on a number of software deals. Customers are looking for a commercial TOS solution. Also the recent Octopi acquisition has had good reception amongst the smaller terminal customers.
Are you still confident with automation potential? Do you think these orders will accelerate other customers’ automation investments?
There is long-term potential. During 2018, we received 5 automation orders. Currently the activity level is relatively good and there are some interesting projects going on. But as we have learned from the past, it is hard to forecast actual timing and realisation of those projects. For 2019 we do not expect any large single deals.
How do you expect Kalmar orders, sales and profitability to develop in Q4?
In general, we see the Kalmar Mobile Equipment and Service market relatively stable. In the industrial segment we have had lower demand.
For Q4 we do not expect any large single deals for automation.
Regarding software business, main drivers are XVELA adoption rate and customers' decisions to replace in-house TOS systems with Navis solutions.
Kalmar’s order backlog is now 19% up y-o-y. The trade war may increase uncertainty and weaken the sentiment among customers, and visibility is weaker.
What’s the driver for Kalmar’s improved margins?
Hiab Q3 order intake increased only 4% y-o-y. How do you see market activity going forward? Is Hiab at the peak of the cycle?
If we exclude acquisitions, orders declined by 2%. Hiab’s market activity has been on a good level. We had in the comparison period a fairly large Demountables governmental order. In Q3 Hiab’s orders increased in AMER (+27%) and declined in EMEA (-7%). Going forward construction activity remains key driver, and it is expected to grow globally in 2019.
Will Hiab orders, sales and EBIT grow in 2019?
Unless nothing abnormal happens in Q4, we expect Hiab sales and EBIT to improve in 2019.
MacGregor and TTS. What is the impact of TTS numbers?
MacGregor’s total orders received in the third quarter increased by about 10 percent from the comparison period to 156 (141) MEUR. MacGregor’s orders received on the third quarter included TTS orders worth 21 MEUR. TTS sales were EUR 18 MEUR, and its comparable operating profit was 1.9 MEUR. TTS order book at the end of the third quarter was 218 MEUR.
Q3 excl TTS
When will MacGregor profitability improve?
We expect MacGregor to be loss-making in 2019 (including TTS). We are restructuring the offshore business and working on the TTS synergies. These are expected to improve profitability for 2020. We expect MacGregor’s Q4 to be loss-making.
2019 order outlook for MacGregor?
For 2019, Clarkson estimates 852 (vs 950 in 2018) merchant vessel orders and in offshore 63 (vs 82 in 2019). Based on this we expect that the activity on the market is weaker than in 2018.
How much of MacGregor's order book is merchant ship and how much offshore-related?
Around 75% of the order book is merchant ship-related and 25% is offshore vessel-related. Rapp is categorised as offshore.