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Why invest in Cargotec
On 27 April 2023, Cargotec's Bopard of Directors decided to investigate and initiate a process to potentially separate its core businesses Kalmar and Hiab into two standalone companies. On 30 May 2024, Cargotec's Annual General Meeting resolved on the partial demerger of Cargotec Corporation in accordance with the demerger plan. On 30 June 2024, the completion of the partial demerger of Cargotec Corporation was registered with the Finnish Trade Register. Read more
Business environment (an extract from Cargotec's half-year report January–June 2024, 8 August 2024)
The business environment in which Cargotec operates is complex, stemming from high interest rates and inflation, growing geopolitical tensions, and sluggish growth estimates. However, the global economy has remained remarkably resilient and the shipping market is in a strong cycle.
Demand for Hiab's solutions is influenced by general economic growth, construction market development and truck sales, among others. Inflation, high interest rates and political instabilities continue to cause challenges1. Decrease in interest rates, easing inflation and overall enhancing economic outlook may boost the customer investment activity, but timing remains uncertain.
According to the International Monetary Fund's (IMF) world economic outlook update published in July 2024, the global economy is projected to grow by 3.2 percent in 2024 and by 3.3 percent in 2025. In the IMF’s advanced economies group (a group of countries which includes several key markets for Hiab, 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 services inflation, linked to both wages and prices, is hindering the disinflation progress and making the normalisation of monetary policy more difficult.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 second quarter, the new ship orders amounted to 898, including also 72 mobile offshore units (Q1–Q2 2023: 683). In 2024, the number of new vessel orders is projected to be 1,879 (FY 2023: 2,114 as per 1 July 2024).3
The shipping market is in a continued strong market cycle with high earnings. Geopolitical disruptions, for example, are driving robust shipping capacity demand growth, along with improving seaborne trade volumes. A tight supply-demand balance has increased freight rates and ship owner earnings are above the ten-year average. However, shipyard capacity is a limiting factor for sector growth and newbuild prices are approaching a record-high level.
1 S&P Global, Q2 2024
2 International Monetary Fund: World Economic Outlook Update, July 2024
3 Clarkson Research, July 2024
Source: Cargotec’s half-year report January–June 2024. The text is updated quarterly.
Developments in the global economy 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 inflation, withdrawal of fiscal support, longer-term effects from the COVID-19 pandemic and Russia’s invasion of Ukraine as well as tensions in Middle East, weak growth in productivity and increasing geo-economic fragmentation are limiting economic growth.
In the current market situation, demand for Hiab’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 Hiab’s profitability margins negatively.
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.
Availability problems and increases in costs of components, raw materials and energy could make cost control more challenging, elevate manufacturing expenses as well as increase challenges to pass them on to the prices of end products. The turnover, availability and cost of skilled personnel can create disturbances to Cargotec and its supplier operations and increase costs.
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.
In May 2024, Cargotec announced that it had started the sales process of MacGregor. Taking into account MacGregor's losses in recent years and significant project cost overruns in the offshore business, 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.
If a solution to MacGregor is found so that MacGregor would not thereafter be part of the Cargotec group, Cargotec’s Board of Directors is planning to propose to Cargotec’s General Meeting of shareholders that the company’s name would be changed from Cargotec to Hiab. 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 conventional technologies. 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. Further, Cargotec is involved in governmental business with specific requirements. Failing to comply with such requirements may lead to penalties or exclusion from government tenders.
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.
