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Cargotec as an investment

Why invest in Cargotec

In April 2023 Cargotec's Board of Directors decided to investigate and initiate a process to potentially separate its core businesses Kalmar and Hiab into two standalone companies. Cargotec’s intention would be to separate Kalmar as a new listed company by means of a partial demerger from Cargotec. In February 2024, Cargotec's Board approved a demerger plan concerning the separation of Kalmar into a new listed company. More information.

Operating environment

Business environment (from Cargotec's interim report January–March 2024, 30 April 2024)

The business environment in which Cargotec's businesses Hiab, Kalmar and MacGregor operate is complex, stemming from high interest rates and inflation, growing geopolitical tensions, and sluggish growth estimates. However, many of our customers and partners are performing well.

According to the International Monetary Fund's (IMF) world economic outlook published in April 2024, the global economy is projected to grow by 3.2 percent in 2024 and by 3.2 percent in 2025. In the IMF’s advanced economies group (a group of countries which includes several key markets for Hiab and Kalmar, such as the United States, the United Kingdom and Germany), the IMF estimates a 1.7 percent growth in 2024 and a 1.8 percent growth in 2025. The report notes that the pace of global growth is low by historical standards, owing to both near-term factors, such as still high borrowing costs and withdrawal of fiscal support, and longer-term effects from the COVID-19 pandemic and Russia’s invasion of Ukraine; weak growth in productivity; and increasing geo-economic fragmentation.1

Kalmar’s demand is also impacted by the number of containers handled at ports globally, which is estimated to have increased by 5.9 percent during the first quarter and increase by 2.5 percent in 2024.2

The demand for MacGregor’s solutions is impacted by the level of merchant ship and offshore newbuilding contracting at shipyards. By the end of the first quarter, the new ship orders amounted to 353 (Q1/2023: 241). In 2024, the number of new vessel orders is projected to be 1,879 (2023: 1,943).3 In the merchant segment, the newbuilding demand is turning towards tankers and gas carriers while the container ship and car carrier ordering is slowing down. In offshore, the wind energy is still driving the demand. Environmental regulations and ageing fleets increase demand for services and upgrades.

1) International Monetary Fund: World Economic Outlook, April 2024
2) Drewry Container Forecaster, March 2024
3) Clarkson Research, April 2024

Short term risks and uncertainties

Source: Cargotec’s interim report January–March 2024. The text is updated quarterly.

Developments in the global economy and cargo flows have a direct effect on Cargotec’s operating environment and customers’ willingness to invest. Changes in the global economy and supply chains, geopolitical tensions and wars, energy availability, sanctions and trade wars can have an impact on global flow of goods and therefore on the demand of Cargotec’s solutions.

Still high borrowing costs and withdrawal of fiscal support, and longer-term effects from the COVID-19 pandemic and Russia’s invasion of Ukraine; weak growth in productivity; and increasing geo-economic fragmentation are slowing down economic growth.

In the current market situation, demand for Cargotec’s solutions might be lower than in previous years. Customers may also try to postpone or cancel orders or demand lower prices. Despite planned cost savings, lower production volumes could impact Cargotec’s profitability margins negatively.

Availability of components and raw materials have improved from the previous years. However, disruptions in the supply chain are still possible. Component availability problems as well as increased labour and energy costs could elevate manufacturing costs and increase challenges to control costs and pass them on to the prices of end products.

The deterioration of the global economic outlook and access to finance as well as interest rates that have remained higher than in the past decade can lead to economic and financial difficulties among Cargotec’s customers. In some cases their financial position may rapidly deteriorate significantly or even lead to insolvency. The turnover, availability, and cost of skilled personnel can create disturbances to Cargotec and its supplier operations.

Container traffic growth rate and a possible slowdown or contraction in global economic growth may in the longer term have an effect on Kalmar's demand. Kalmar’s project executions face risks related to schedule, cost and delivery guarantees.

In addition to economic growth, for example, Hiab’s demand is also impacted by the development of the construction market. Low new building activity can negatively impact demand of a part of Hiab's portfolio, especially in Europe. A significant share of Hiab’s orders are from the United States. Even though cash flows are hedged for the existing order book, the weakening of the US dollar could in the longer term weaken Hiab’s results. Similarly, a stronger dollar can improve Hiab’s results. Hiab's solutions are installed on trucks, and truck delivery bottlenecks can have a negative impact on Hiab's sales development.

MacGregor's market development is affected by the tightening emission regulation for ships and related uncertainty. The increases in the new vessel construction costs and high amounts of order bookings at shipyards may slow down new vessel orders. Global decarbonisation targets have led to a fall in investments by the oil industry, which has long been reflected in low offshore vessel investments. Downward revision of market estimates or rising interest rates could result in an impairment of MacGregor's goodwill. Project executions face risks related to schedule, cost and delivery guarantees, especially those related to offshore business and new product developments. Currently MacGregor has approximately 10 loss making offshore pilot projects containing advanced technologies in the order book. MacGregor has an ongoing dispute related to a monopile installation equipment project.

In November 2022, Cargotec’s Board of Directors concluded that MacGregor will not be part of Cargotec’s portfolio in the future. Taking into account MacGregor's losses in recent years and significant project cost overruns in the offshore business, in the sale alternative the buyer's view of the company's value may differ significantly from Cargotec's estimate, which could result in a write-down of MacGregor's book value.

In April 2023, Cargotec announced that its Board of Directors had decided to investigate and initiate a process to potentially separate Cargotec’s core businesses Kalmar and Hiab into two standalone companies. On 1 February 2024, Cargotec’s Board of Directors approved a demerger plan concerning the separation of Kalmar into an independent listed company. The demerger is subject to approval by the Annual General Meeting of Cargotec to be held on 30 May 2024. The planned actions can include risks related to the retention of skilled personnel, customer relationships, the execution of potential transactions, and costs, for example. Changes in operating models, combined with tightening tax regulation, may lead to additional tax payments.

Cargotec is exposed to climate-related risks via environmental, regulatory, and technological changes, and due to the commitments it has made to reduce emissions. The evaluation of the financial impacts of climate change on Cargotec is complicated because the occurrence and timing of the resulting effects are difficult to predict, let alone quantify. To reduce emissions generated in its supply chain, Cargotec must reduce emissions through its whole supply chain from raw materials to components and manufacturing, which may result in changes in the suppliers used, limit the number of potential suppliers, and increase costs.

The reduction of emissions related to the use of Cargotec's products can only be achieved if there is sufficient demand for low-emission products. In order to achieve this, Cargotec must succeed in developing and selling low-emission products. Cargotec's product development has a critical role in achieving this. Cargotec has invested heavily to electrify its product offering and customers are increasingly choosing low-emission products although the majority of products sold are still based on combustible engine technology. In the future, Cargotec's product offering may be based on multiple low-emission technologies, which may increase complexity and cost.

Reaching the set emission targets requires efforts in every aspect of Cargotec's business. In addition to being exposed to climate-related risks, the ongoing transition process causes new risks, the realisation of which can have significant financial effects. These effects can lead, for example, to impairments of assets due to the shortened life cycles of products, as well as additional costs related to the introduction of new technologies, which may arise in product development, the realisation of project risks, the growth of inventories, and new types of warranty defects. In addition, tightening regulation may directly limit Cargotec's product offering.

Cargotec is involved in certain legal disputes, investigations and trials. The interpretation of international agreements and legislation may weaken the predictability of the end results of legal disputes and trials.

Risks regarding Cargotec’s acquisitions are related to, for example, the knowledge of local markets, authority processes, customers, corporate culture, integration, costs, achieving targets, as well as key employees.

Information security risks are also materially related to Cargotec’s operations. A cyber attack on systems that are critical to the operations of the company, its customers or suppliers can disrupt operational stability, lead to a decrease in sales and damage Cargotec’s reputation, for example.

There are also ethical risks related to the industries and the geographical scope where Cargotec operates. Cargotec has increased actions to ensure compliance with its business guidelines, regulations and ethical principles. Related internal processes are constantly being developed.

More information on risks is available at www.cargotec.com, under Investors > Governance > Internal control and risk management.

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