Cargotec as an investment

The year 2022 has started eventfully. We refocused our strategy at the end of March. Sustainability and profitable growth remain our breakthrough objectives but, going forward, we focus on developing Hiab, Kalmar mobile equipment and straddle and shuttle carriers, as well as related services (Core businesses). The decision to refocus the strategy follows the decision of the Boards of Directors of Cargotec and Konecranes to cancel the planned merger after the negative resolution of the UK Competition & Markets Authority. 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.

Hiab and refocused Kalmar offer their customers lifecycle services as well as market leading equipment and technologies. During the last eight years, their comparable operating profit margins have been above 10 percent. A large installed base with related services forms the basis of these businesses with both of them holding leading market positions in structurally attractive markets.

Our refocused strategy enables additional investments in research, development and M&A in our core businesses, providing us a good position to further enhance our business through electrification, robotics and digitalisation.

The market environment has also evolved strongly during the first quarter. The persisting coronavirus pandemic and the related restriction measures have caused global delivery and logistics challenges, as a result of which also the level of inflation has risen. China’s strong blockage measures pose a risk that these challenges will continue.

Russia’s attack on Ukraine is cruel and unjustified. We comply with the international sanctions imposed on Russia and have stopped our sales in Russia and Belarus. The direct impacts of the attack on Cargotec's business have so far been limited. However, in the form of component availability challenges and accelerating inflation, for example, the indirect effects of the crisis on the global economy and our business are significant.

We have responded to these challenges by continuing the price increases we started last year, engaging in an active supplier cooperation, and building alternative supply chains.

Despite the uncertain market situation, demand for our core businesses continued strong. Hiab reached its all-time second highest orders received while Kalmar’s demand remained on a strong level. Our sales increased by 17 percent during the first quarter, even when component challenges still had a negative effect on our sales development. We estimate the supply chain challenges to continue also during the rest of the year.

The positive development of our service business continued with orders received increasing by two percent to 307 million euros, which is close to an all-time record. Service sales increased by 12 percent to 284 million euros.

Also the customer interest towards our eco portfolio is strong. As examples, Hiab received a record order for electric truck mounted forklifts and Kalmar was awarded its first orders for the world’s first fully electric reachstackers. Kalmar’s order to provide the world's first electric reachstacker with a combined charging system to Norway as well as Hiab’s record order also include five-year service agreements. The eco portfolio sales also progressed well, increasing as much as by 38 percent from the comparison period and reaching a 24 percent share of Cargotec total sales. In the future, as 28 new products were added to the eco portfolio and Hiab presented its third all-electric truck mounted forklift model, we will be able to respond even better to the demand for sustainable equipment.

Our comparable operating profit increased by 26 percent to 65 million euros. This illustrates well the excellent resilience and agility of our business when, despite supply chain challenges, we were able to improve our profitability.

In 2021, our market situation improved, global economic activity picked up, and the demand for our products and solutions strengthened significantly. As the year progressed, however, component shortages and supply chain challenges delayed our deliveries. The continuing Covid-19 pandemic also hampered both our operations and those of our customers.

Orders received increased by 42 percent compared to the comparison period. The order increase was particularly noticeable in short-cycle products (Hiab and Kalmar’s mobile equipment), but the project business orders also increased clearly both in Kalmar and MacGregor. The order book grew by 56 percent.

Despite the strong demand, our sales increased by only 2 percent. This was due to lower project deliveries in Kalmar and MacGregor as well as the sale of the Navis business. Component shortages and global logistics challenges limited our ability to respond to the demand.

I am satisfied with the progress of our service business. It reached a new record with services sales increasing by 7 percent and services orders received by 18 percent compared to the previous year. Service and software business sales constituted 35 percent of our total sales in 2021.

Cargotec’s comparable operating profit increased by 2 percent to EUR 232 million, driven by higher comparable operating profit in Hiab. Challenges in the delivery chain and added costs thereof impacted Kalmar’s result in particular, causing its comparable operating profit to decrease by 5 percent. MacGregor’s market developed positively but, due to one-time cost overruns related to new product developments in offshore wind energy vessel projects during the last quarter, MacGregor’s result for the whole year turned negative.

Safety is key during pandemic
The Covid-19 pandemic began more than two years ago, and in early 2021, it still tested global societal resilience. At the beginning of the year, the rapid progress of vaccination programmes raised hopes that the pandemic would be over within a year. However, towards the end of the year it became clear that we would still have to continue with precautions and restrictions in terms of travelling, and with meetings with our customers, for example.

During the pandemic, ensuring the health and safety of our employees, customers and suppliers has been a key priority for us. I am proud and grateful that our personnel have been able to operate efficiently and safely even in these difficult conditions, securing our operational continuity and financial result and that of our customers.

Our strategy emphasises sustainability and profitable growth
We announced our refined strategy and vision in April. Our breakthrough objectives are sustainability and profitable growth and, with our business areas Kalmar, Hiab and MacGregor, we share the vision to become the global leader in sustainable cargo flow. Sustainable business is key to us: in concrete terms, we aim to reduce the CO2 emissions of our value chain by 1 million tons by 2024.

The refined strategy was the outcome of a tightly-knit process that embraced the whole company, ensuring tangible, measurable targets and ownerships. I can already see that the refined strategy will further clarify our actions and gather us together to execute our common goals.

Several significant strategic actions during 2021
In July, we completed the sale of the Navis business to Accel-KKR, a Silicon Valley-based investment firm for an enterprise value of EUR 380 million. The transaction had an approximately EUR 230 million positive impact on our operating profit. The proceeds enable further investments in acquisitions and R&D investments in the fields of electrification, digitalisation, robotisation, and automation.

During the year, we announced our agreement with SSAB to work on the introduction of fossil-free steel to the cargo handling industry. This is a significant milestone in moving toward sustainable development and a fossil-free product offering.

The year 2021 marked a considerable milestone for Kalmar as its entire portfolio became available as electrically powered versions. As a culmination of the year, Kalmar launched three new fully electrically powered solutions in December: Kalmar Electric Reachstacker, Kalmar Electric Heavy Forklift and Kalmar Ottawa Electric Terminal Tractor. With these launches Cargotec can offer electric products in all of its product categories.

Hiab strengthened its position in the US with the acquisition of Galfab, a US manufacturer of demountables. To meet the growing demand for truck-mounted forklifts, Hiab is also expanding its production to the United States and increasing its truck-mounted forklift production capacity in Dundalk, Ireland.

In terms of MacGregor, the focus of new offshore vessel orders has shifted to vessels supporting wind power. Despite the year-end difficulties in new product developments in the offshore wind energy field, I firmly believe that MacGregor is well positioned to strengthen its position as a provider of wind power solutions in the future.

R&D focused on emission-reducing solutions
Research and product development expenditure in 2021 totalled EUR 102 million, representing 3.1 percent of sales. In development, our focus was on solutions that support our customers’ efforts to reduce their operational emissions. A good example of this is Kalmar’s commitment to provide an electric version of all its solutions, which I mentioned earlier. During the year, Kalmar also introduced a future range of robotised mobile equipment solutions and an automated container information solution for reachstackers for safer and more efficient container movement management.

Along with its product launches during the year, Hiab announced that, in addition to the new multi-assembly unit investment in Dundalk, Ireland, the new facility will also house a global innovation and R&D centre.

MacGregor’s extensive R&D activities in 2021 included next generation variable frequency drive (VFD) electric cranes and a fully electrically driven heavy lift crane, among others. The VFD increases efficiency by up to 50 percent, with additional benefits achieved through weight reduction.

Commitment to sustainability is the right thing to do
Cargotec has a long tradition in sustainability. We signed the UN Global Compact as early as in 2007, and in 2020 we committed to the United Nations Global Compact’s Business Ambition for 1.5°C to mitigate climate change. Our strategy clearly reflects this by aiming to reduce the CO2 emissions in our value chain.

At the end of the year, we received a B rating from the prestigious CDP in its assessment of environmental management levels of companies and cities. This is the second year in a row for Cargotec to receive this rating, which indicates that we have taken coordinated actions on climate issues. The interest our customers and shareholders have shown in this theme during the year
proves that our commitment to sustainable operation has been the right decision to make.

Our eco portfolio consists of products and services that can enhance our customers’ sustainability with tangible environmental benefits. In 2021, the eco portfolio sales represented 19 percent of our total sales. Customer interest towards eco-efficient equipment is increasing, which offers us a clear business opportunity. As an example, more than a quarter of the forklift truck orders in 2021 were fully electric.

Our safety performance declined slightly in 2021. The Industrial Injury Frequency Rate (IIFR) weakened at assembly sites due to disturbances in production processes, caused by component shortage. On the other hand, the IIFR improved at service organisations and at non-assembly sites. We continue our determined actions to improve occupational safety.

The year 2022 looks challenging, yet interesting
It seems that we will have to live with the Covid-19 pandemic for a while still. It is important that we protect ourselves and our fellow human beings in compliance with official guidelines. At the same time, however, we must be able to ensure the continuity of social and economic activity both globally and locally, and make sure that everyday life goes as smoothly as possible for us all.

Component shortages and global logistics challenges will continue in 2022, which may limit Cargotec’s ability to respond to the growing demand. We work in close cooperation with our suppliers to ensure component availability, production and deliveries also in 2022. Our order book is strong, which gives us a good setup for 2022.

In October 2020, Cargotec and Konecranes announced their combination agreement and a merger plan to combine the two companies through a merger. The extraordinary general meetings of Cargotec and Konecranes held in December 2020 approved the merger. Various competition authorities are currently reviewing the proposed transaction.

Cargotec and Konecranes are awaiting the authorities’ decisions and continue to work towards the merger being completed by the end of H1 2022. Until all the merger closing conditions are met and the deal is completed, both companies continue to operate fully separately and independently. More information about the merger is available in this report and at www.sustainablematerialflow.com.

I would like to thank our employees for a job well done in a challenging environment as well as our customers, partners and shareholders for their trust during the year 2021.

Mika Vehviläinen
CEO, Cargotec

Cargotec’s CEO Mika Vehviläinen in Cargotec’s financial statements review 2021: Strong demand throughout the year, supply chain challenges continued during the second half of the year (3 February 2022)

The year 2021 was twofold. The improving market situation and increasing economic activity boosted our orders received to a record level, and our main demand drivers - number of containers handled at ports globally, construction activity, new vessel contracting - grew significantly. However, as the year progressed, component shortages and global logistics challenges proved to be more difficult than what we had estimated, causing delays to our deliveries. Due to the coronavirus pandemic, market predictability was exceptionally challenging.

In 2021, orders received increased by 42 percent compared to the comparison period. The order increase was particularly noticeable in short-cycle products (Hiab and Kalmar’s mobile equipment) but also the project business orders increased clearly both in Kalmar and in MacGregor. Our order book grew by 56 percent and, as an example, Hiab’s order book nearly doubled when compared to the previous year. Strong demand and extended short-cycle product delivery times affected the growth of our order book.

Despite the strong demand, our sales increased by only 2 percent due to lower project deliveries in Kalmar and MacGregor as well as the sale of the Navis business. In addition, component shortages and global logistics challenges limited growth in Hiab and in Kalmar mobile equipment. We estimate these factors to have affected our sales by approximately EUR 80 million during the fourth quarter. We work in close cooperation with our suppliers to ensure component availability but estimate that component and logistics challenges to continue in 2022.

Cargotec’s comparable operating profit increased by 2 percent to EUR 232 million, driven by higher comparable operating profit in Hiab. Challenges in the delivery chain and added costs thereof impacted Kalmar’s result in particular, causing its comparable operating profit to decrease by 5 percent. Despite MacGregor’s positive market development, due to one-time cost overruns related to new product developments in offshore wind energy vessel projects during the last quarter, MacGregor’s result for the whole year turned negative.

Our service business reached a new record when services sales increased by 7 percent and services orders received by 18 percent compared to the previous year. Examples of good progress in services include Kalmar’s multi-year service agreements with Outokumpu’s Tornio stainless steel plant in Finland, and with Holmen Iggesund’s mill in Sweden. Service and software business sales constituted 35 percent of our total sales in 2021.

The eco portfolio sales represented 19 percent of Cargotec’s total sales. The customer interest towards eco-efficient equipment is increasing. As an example, more than a quarter of the forklift truck orders in 2021 were fully electric. Going forward, we will be able to better meet the growing demand for electrical equipment, as Kalmar introduced three all-electric solutions in December. With these launches Cargotec can offer electric products in all of its product categories.

Cargotec refined its vision and strategy in April. Our vision is to become the global leader in sustainable cargo flow and our strategic breakthrough objectives are sustainability and profitable growth. Practical examples of executing the strategy in 2021 include the development of the fully electric offering as well as our agreement with SSAB to work on the introduction of fossil-free steel to the cargo handling industry. In concrete terms, Cargotec aims to reduce the CO2 emissions of its value chain by 1 million tons by 2024.

During the year we completed the sale of the Navis business, which had an approximately EUR 230 million positive impact on our operating profit. The proceeds enable R&D investments in the fields of electrification, digitalisation, robotisation and automation, and further investments in acquisitions. As an example, Hiab acquired the demountables manufacturer Galfab in the US and, to speed up the development and launch of robotic solutions across the mobile equipment offering, Kalmar signed a joint development agreement with Coast Autonomous Inc. in the US.

On 1 October 2020, Cargotec Corporation and Konecranes Plc announced their combination agreement and a merger plan to combine the two companies through a merger. Extraordinary general meetings of Cargotec and Konecranes held on 18 December 2020 approved the merger. Competition authorities in the EU, UK, and US, among others, are reviewing the proposed transaction. In August, Cargotec and Konecranes received an unconditional approval from the State Administration for Market Regulation, the competition authority in China, for their planned merger.

As previously communicated, Cargotec and Konecranes have continued their dialogue and cooperation with relevant competition authorities to find satisfactory ways to mitigate concerns raised by the competition authorities to secure approvals to complete the merger of Cargotec and Konecranes. Based on ongoing dialogue with the authorities, the remedy requirements are more complex than expected.

Cargotec and Konecranes have discussed remedies with relevant competition authorities based on a commitment offered to the European Commission to divest Konecranes' Lift Truck business and Cargotec's Kalmar Automation Solutions. Both companies consider the offered remedy package as sufficient and feasible. Further investigations regarding the proposed remedies and negotiations with relevant competition authorities regarding antitrust concerns continue.

Cargotec and Konecranes are awaiting the authorities’ decisions and continue to work towards the merger being completed by the end of H1 2022. Until all merger closing conditions are met and the deal is completed, both companies continue to operate fully separately and independently. More information about the merger is available from the web address www.sustainablematerialflow.com.

I would like to thank Cargotec employees for their work and dedication during the year 2021 as well as our customers, shareholders and partners for the trust and cooperation.

A year to remember

In 2020, our long-term strategy proved to be more valid than ever before. The COVID-19 pandemic affected our business especially during the first two quarters, but we acted decisively, securing our profitability whilst making good progress in our strategy execution.

Business area performances varied
The pandemic situation had a clear impact in all our business areas, and orders received decreased by 16 percent compared to the previous year. The situation improved steadily throughout the second half of the year. In fact, the orders for Hiab solutions and Kalmar mobile equipment increased year-on-year in the fourth quarter. In the uncertain environment, customers still hesitated with larger investments, which was visible in MacGregor and in Kalmar’s automation and project business where we saw postponements.

Our order backlog was strong as we entered 2020, which helped us cope with the pandemic crisis early on. In fact, sales increased in Kalmar’s project business and in MacGregor. Sales declined in Hiab and Kalmar’s mobile equipment, where the lead times are shorter. This was a result of the drop in their orders received in the first half of the year. We enter 2021 with a healthy order backlog especially in Hiab and Kalmar’s mobile equipment business.

I am pleased with the robust performance of our service business, producing 31 percent of our sales. The sales of our eco portfolio increased as well, totalling 24 percent of our sales in 2020. Our target in 2021 was to double the sales growth in our eco portfolio compared to traditional products, and we achieved that ahead of schedule. It is evident that our customers are increasingly moving towards sustainable solutions, preferring our electric and hybrid solutions over internal combustion engines.

Decisive actions to ensure profitability and strategic direction
Our comparable operating profit decreased due to decrease in sales. Nevertheless, during the pandemic crisis we have defended our profitability and kept our comparable profit margin at a healthy level. Supported by a successful TTS synergy and restructuring work, MacGregor returned to black numbers in the second half of the year.

To minimise the effects of the pandemic, we initiated temporary cost savings in April–August, which produced ca. EUR 10 million monthly savings. This was also a powerful demonstration of how our processes and tools allow us to quickly change our ways of working and safeguard our employees and our financial performance. Towards the end of the year, we shifted our focus from temporary measures to more structural savings. In fact, our headcount at the end of the year was approximately 1,000 lower than one year ago.

In 2020, we initiated a strategic evaluation of the software solutions and services provider Navis to support its future development. In December, the Board of Directors decided to initiate the actual sales process of the Navis software business. During the year, we also sold our share of Rainbow-Cargotec Industries Co., Ltd joint venture in China, completed the TTS integration with MacGregor, and – to strengthen our customer access, local presence and competitiveness in China – established a joint venture with CSSC Nanjing Luzhou Machine Co., Ltd. These actions support our strategic direction going forward.

Merger with Konecranes will create a global leader in sustainable material flow
In October, we announced the plan to combine Cargotec and Konecranes through a merger. In December, the extraordinary general meetings of both companies resolved to approve the merger, which was the unanimous recommendation of the Boards of Directors of both companies.

Cargotec and Konecranes are well positioned in their markets – in industries, factories, ports, terminals, road and sea-cargo handling. Together with Konecranes, a company with a similar profile and shared ambitions, we will have the opportunity to make an even larger impact on global material flows. The work to finalise the merger continues in 2021. Completion is expected in January 2022, provided that all conditions for the completion are being fulfilled.

Progress in strategic targets
We refined our strategy for the period 2019–2021 with services, digitalisation and productivity as the main drivers in 2020. The COVID-19 pandemic slowed our progress, but we held fast to our targets and saw robust development in digitalisation and services in particular. All in all, service and software sales accounted for 36 percent of our consolidated sales.

In 2020, we continued to increase our research and development investments (105 million euros vs. 102 million euros in 2019) and extended our service offering further towards intelligent solutions. This enables us to serve our customers on a wide scale throughout the lifespan of their solutions.

We have made good progress in developing our digital service offering. Our equipment data provides valuable insight to our customers on how their equipment is performing in the field. This makes it possible to pinpoint and schedule service operations exactly where and when needed. The equipment data also gave us a good idea of the activity levels of cargo flows and logistics in different segments and geographical locations. This was valuable when estimating how our industry was coping in the midst of the COVID-19 crisis, for example.

The importance of sustainability and safety increases
The strategic importance of sustainability continues to increase at Cargotec. In May, we committed to the UN Global Compact Business Ambition for 1.5°C campaign. We aim to reduce our CO 2 emissions from raw material sourcing and product use phase by at least 50 percent from the 2019 levels by 2030, and reach carbon neutrality in our own operations by 2030. With these actions, we strive to make the logistics industry more sustainable and enable a lower-carbon economy.

We received several orders that highlight the sustainable capabilities of our offering. MacGregor received its largest single vessel order to supply a mission-critical system on an offshore wind foundation installation vessel. In June, Kalmar got an order for eco-efficient mobile equipment from Australia and, in September, an order for 20 hybrid straddle carriers from the US.

We are dedicated to safeguarding the health and safety of our personnel. Even in the midst of the pandemic crisis we paid special attention to ensuring safe working conditions both to our customers and our own employees.1 I am glad to note that we did not have major COVID-19 outbreaks at any of our sites. We also achieved our IIFR 2 targets for 2020, bringing down the injury rate at many of our assembly sites.

I would like to thank all Cargotec employees for their hard work during this extraordinary year. It delights me to see that, despite the challenges during 2020, our Compass employee satisfaction survey showed healthy improvements in many areas. I would also like to thank our shareholders for the trust they have placed in us and Cargotec’s Board of Directors for its continuing support during these unprecedented times.

Mika Vehviläinen
CEO, Cargotec