CEO Mika Vehviläinen: Cargotec's year 2019
Cargotec published its Annual review 2019 on 18 February 2020. In his CEO review, Mika Vehviläinen shares his reflections about the year 2019.
This text is an extract from the Cargotec Annual review 2019. Links to the 2019 annual report documents can be found on this same page.
We made good progress in many areas in 2019. Our service business developed well. With an 8 percent overall growth in services sales, each business area increasing their services sales, and our software sales going up by 15 percent year-on-year, we are well on track towards reaching our targets.
Customer interest towards port automation is growing. Customer confidence in the benefits of port automation has increased and instead of trying to decide whether to automate container ports at all, they are now considering how to automate them. We received a substantial number of automation orders in 2019 and have 10 automation delivery projects ongoing. This had a positive effect on our software sales also.
Our comparable operating profit was good, with Kalmar’s profit increasing by 13 percent and Hiab’s by 27 percent. I would also like to note the determined work both Hiab and Kalmar have put into solving their supply chain challenges that stemmed from 2018. This paid off positively with improvements in supply chain operations towards the end of the year and had a positive effect on the performance of both business areas.
On the other hand, MacGregor’s challenging situation continues. Cost overruns in certain offshore projects, low capacity utilisation, and lower sales margins led to a negative result in MacGregor. Sluggishness in the MacGregor market has now continued for about six years and has not yet shown any clear signs of recovery. Our streamlining actions in MacGregor will continue in 2020.
On a positive MacGregor note, we completed the TTS acquisition at the end of July. The transaction will ultimately make MacGregor stronger and support its ambition to restore its profitability in the future. The scale benefits of the acquisition and synergies thereof create an opportunity to further improve MacGregor’s productivity and global presence.
Good progress in strategy execution
Our strategy proceeded as planned in 2019, and we worked hard on our four strategic must-win battles – customer centricity, services, digitalisation and productivity.
I already mentioned the good progress in services and software. On the digitalisation front, we introduced several new digital services, solutions and applications during the year. MacGregor’s OnWatch Scout (a digitally-enabled predictive maintenance service), Kalmar One (the first open automation system for container terminals), and Hiab’s new waste collection crane are just some examples of those.
Our productivity programmes have already provided us with centralised global support services as well as various productivity initiatives across the company, and this work continues in 2020. In customer centricity we made good progress in transforming our processes and mindset to meet the requirements for a more customer centric company.
With regards to growing faster than the market and providing an increasing dividend, we have delivered on our targets. Our business areas have #1 or #2 positions in their respective markets, and our dividend has continued to increase for five consecutive years. Our earnings per share in 2019 was burdened by high restructuring costs but our cash flow improved significantly from the previous year. This enables a dividend increase also for 2019 (Board of Directors’ proposal to the Annual General Meeting).
We still have work to do in achieving some of our financial targets. While our ROCE has improved from 5.0 percent (2013) to 7.3 percent in 2019, it is still behind our set target of 15 percent. In addition, our gearing is presently above our 50 percent target, having been negatively affected by the application of the IFRS 16 accounting standard in 2019. As for our plans to reach a 10 percent operating profit target, we are progressing according to our plans in most areas: good growth in services and software, increasing demand for port automation and good profitability development in Hiab and Kalmar support us in reaching this target. In MacGregor we unfortunately have headwind due to the difficult market situation.
We enable sustainable performance for our customers
In 2019, discussion and concerns about climate change rose in importance, and our industry was no exception. In a stakeholder survey that we conducted in 2019, results showed that our customers want – even expect – us to provide eco-efficient and low-carbon solutions that help them mitigate climate change in their own operations.
We have for years worked consistently to reduce our own environmental footprint and, even more importantly, developed solutions that allow our customers operate in a more sustainable fashion. In 2017, we launched our Offering for eco-efficiency portfolio which consists of solutions that enhance our customers’ sustainability with cleaner technologies, software solutions or services supporting circular economy. We have regularly added solutions to the portfolio, and in 2019, it constituted 21 percent of our total sales. This shows that sustainability is not only good for the environment, it is also good for business.
The market sentiment in 2019 was somewhat uncertain. Things that caused concern within the industry include items like the US-China trading dispute, Brexit, and the economic and regulatory uncertainty that impacted the maritime industry and MacGregor customers in particular.
Some challenges from 2019 may carry over to 2020. However, I feel we are well prepared for this year. Our strong order book and the expected benefits of the TTS integration, for example, give us solid tools to realise our promises in 2020.
In our market outlook for 2020 we expect our comparable operating profit for 2020 to improve from 2019 (EUR 264 million). We need to be prepared and agile during the year to deliver on that estimate. We must prepare scenarios for any changes that the market may put before us during the year. We face this task with confidence and proceed with determination into 2020.
I want to thank our shareholders and customers for their confidence and trust in our operations, and our employees for their hard work and dedication.