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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.
Business environment (from Cargotec's financial statements review 2023, 1 February 2024)
The business environment in which Cargotec operates is complex, stemming from high interest rates and inflation, possible interruptions in supply chains, growing geopolitical tensions, and sluggish growth estimates. However, many of our customers and partners are performing well.
According to the World Bank’s Global Economic Prospects report published in January 2024, the global economy grew by 2.6 percent in 2023, and is projected to slow to 2.4 percent in 2024. In the World Bank’s advanced economies group (a group of countries which includes several key Cargotec markets, such as the United States, the United Kingdom and Germany), the World Bank estimates a 1.5 percent growth in 2023 and projects a 1.2 percent growth in 2024. According to the report, the slowing down of global growth reflects the effects of tight monetary policy, restrictive financial conditions, and feeble global trade and investment. A possible escalation of the recent conflict in the Middle East and associated commodity market disruptions, financial stress amid elevated debt and high borrowing costs, persistent inflation, and climate-related disasters add to the uncertainty.1
The demand for MacGregor’s cargo and load handling solutions is impacted by the level of merchant ship contracting, which by the end of 2023 amounted to 1,6322 (2022: 1,2863). In the offshore sector, the number of new contracts was 1222 (1373). In 2024, the number of new merchant vessel orders is projected to be 1,577, and in the offshore sector 2044.
1) World Bank: Global Economic Prospects report, January 2024
2) Clarksons Research, January 2024
3) Clarksons Research, January 2023, excluding late registrations
4) Clarksons Research, September 2023
Source: Cargotec’s Financial statements review 2023. 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.
High inflation and interest rates, weak consumer confidence, as well as increased uncertainty are slowing down economic growth. Availability of components and raw materials improved towards the end of the year 2023. However, disruptions in the supply chain are still possible, especially due to the recent events in the Middle East.
The above risk factors can affect Cargotec's operations. 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.
In a changing 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. There is also uncertainty related to achieving the planned cost savings.
The deterioration of the global economic outlook and access to finance as well as increases in interest rates 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 the demand of Kalmar's cargo handling solutions. 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. Economic uncertainty as well as high prices and interest rates, and the availability challenges of building materials can have a negative effect on construction activity, which in turn can negatively impact the demand for Hiab's solutions. 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 decreased offshore vessel investments. However, increase in contracting for wind turbine installations and service vessels is estimated to partly compensate for that in the future. Project executions face risks related to schedule, cost and delivery guarantees, especially those related to offshore business and new product developments. Downward revision of market estimates or rising interest rates could result in an impairment of MacGregor's goodwill.
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. 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.
