IR blog: Questions from retail investors vol 2/2020
We again reached out to retail investors for questions about Cargotec as an investment. Here are their questions from Q3/2020 along with our IR team's answers!
1. I’m considering to invest in Cargotec - where can I find information to base my decision on?
First of all, we are glad to hear that you find Cargotec as an interesting company! You can find a lot of information for investors on cargotec.com, where we would recommend familiarising with for example our strategy, result materials and “Why invest in Cargotec?” video. You might also want to see our IR newsletter and subscribe release distribution in case you would like to receive our latest press and stock exchange releases to your email. Other good sources include our IR blog, which includes e.g. Q&As related to our quarterly results or other timely topics (like this one!), and IR video gallery, a collection of videos of interest to investors. Finally, follow the #CargotecIR hashtag - we produce lots of content on social media that serves investors.
2. What is Cargotec’s 20-30 year vision?
Our current strategy period covers the years 2019-2021 and typically our strategy periods have been about 3-5 years. However, if we think further, megatrends like increasing concern for the environment, population growth and related urbanisation, world trade and energy demand growth as well as digitalisation are and will be long term drivers for our business.
We want to particularly be part of the solution for the climate crisis and capitalise new business opportunities in this area. Cargotec has for example already committed to becoming climate neutral in its own operations and halving all of its emissions by 2030 - in line and exceeding the UN Business Ambition for 1,5 degrees.
Another example of a long-term megatrend is port automation, as to this day only about 40 out of the world’s 1,200 ports have been partly or fully automated. This is a major long-term business opportunity for us as the leader in intelligent digital solutions, electrification and robotics. We believe these will remain key ingredients for success for years to come.
3. What are the main components of Cargotec’s growth strategy and R&D investments in them (in relation to other areas)? How much of the R&D investments are used to innovating something new compared to upkeeping existing operations or fixing issues?
All four areas of our strategy play a part in driving growth: win through customer centricity, advance in services, accelerate digitalisation and productivity for growth. Again this year, we have increased our R&D investments, which were 55 MEUR during H1/2020, a 10% increase from the 2019 comparison period. One concrete example of creating new innovations is Kalmar’s commitment to having its full offering available as electrically powered by 2021. The demand for eco-friendly solutions is constantly growing, and for good reason. An electric terminal tractor can save carbon emissions equivalent of up to 186 cars per year during its lifetime!
On the other hand, our asset light operating model means that we have very limited in-house component manufacturing, which then again means that investments in for instance upkeeping existing factories are quite moderate.
4. What makes Cargotec a better investment than its competitors? What long-term effects does the Covid-19 pandemic have on Cargotec’s business?
We at Cargotec’s Investor Relations are of course excited about Cargotec as an investment, but are obligated to leave investment decisions and comparisons to other companies for others to decide. Cargotec has an excellent opportunity in developing and enhancing the efficiency of global cargo flows. For example, the Brazilian coffee you have for breakfast usually requires several forms of cargo handling to make its way to your mug. Our software expertise plays a key role in making these cargo flows more efficient in the future.
If we think about the long-term effects of the Covid-19 pandemic, it has actually only emphasised that our strategic direction is the right one. For example automation, digital solutions and robotics are and will be increasingly important both from a safety and operational reliability point of view. During the pandemic, online shopping volumes have gone up which means more demand for logistics centres - to which we also provide solutions.
Tongue-in-cheek, you could say that robots don’t get sick or require social distancing. Remote maintenance services monitor equipment without physical human presence. We believe that the pandemic might actually accelerate digitalisation in the industry.
5. Hiab products don’t get enough attention, although I’m impressed with their technology. What plans do you have to improve the visibility and awareness of Hiab? With products like these, I think the P/E should be over 20.
We cannot comment P/E figures, but if you look at the development during recent years, Hiab has been producing good results and investing actively in developing new products. Our experience at Cargotec’s IR is that investors see Hiab’s business as cyclical, and have been waiting for orders to decrease for many years. Maybe one measure of the success of Hiab’s strategy is that it has managed double digit profit margins despite of sales dropping during the Covid-19 pandemic.
Perhaps seeing that Hiab doesn’t get enough attention is also a good feedback for our IR team to keep in mind for the future!
6. What is the dividen plan for the next 3-5 years? Are you planning to pay dividends in multiple instalments?
Cargotec indeed pays dividends twice a year, which means a steadier cash flow to its owners. Cargotec’s financial targets include an increasing dividend in the range of 30-50% of EPS (earnings per share). The dividend has in fact been increasing for 6 straight years
7. Cargotec’s results regularly include rather high restructuring costs. When can we expect an end to these?
In principle, large restructuring costs have been a consequence of growth-enhancing acquisitions and related integration processes. For example, MacGregor acquiring TTS was a significant acquisition of an almost similar-size competitor, which positions MacGregor even better especially on the growing Asian markets. It is also good to keep in mind that all restructuring costs do not have an effect on cash flow.
In addition to acquisitions, several development projects, such as switching to an asset-light operating model and centralising back office activities to a service center in Sofia, Bulgaria, have caused restructuring costs.