Highlights from virtual sell-side analyst meeting with CEO Mika Vehviläinen

CEO Mika Vehviläinen started by highlighting that safety is our number one priority and the number of Covid-19 infections in Cargotec has remained low. In financial terms, the crisis has affected the company’s performance and as previously anticipated, the second quarter has been challenging one for a number of reasons. All Cargotec’s factories are back in operation but running at 70-100% capacity due to safety measures and supply chain challenges. The supply chain situation is continuously improving and Cargotec has worked out a clear roadmap with its suppliers to get back to normal production levels.

On the demand side, the situation is mixed. On a broad level, order intake hasn’t yet fully recovered from the March-April decline. Vehviläinen noted that customers' delayed decision making is most visible in larger orders, affecting Kalmar’s port automation projects and MacGregor, for example. On a more positive note, the situations in the highly profitable Kalmar mobile equipment side and in Hiab are not that dramatic.

In his presentation, Vehviläinen also highlighted the temporary cost structure adjustments that have been generating monthly savings of approximately EUR 10 million. The measures include shifting to a four-day working week and/or corresponding salary reductions of Cargotec’s management and white collar workers. Travelling and the usage of external services have also been reduced to a minimum. Mr. Vehviläinen highlighted that the rapidly implemented measures have proven to be effective but remain temporary. Long term actions would then be needed, should the challenging situation be prolonged.

Cargotec’s balance sheet and liquidity positions are strong. In May, the liquidity reserves were at a level of EUR 950 million. Despite the challenging situation, Vehviläinen pointed out that he is pleased with the development of Cargotec’s net working capital. Inventories are holding steady and receivables are under control. However, lack of advance payments from large automation orders has been weakening the cash flow development.

The presentation also included a summary of the most recently published market environment indicators. In May, Drewry updated their Q1 estimate on the global container throughput. The current estimate predicts a 8 percent decline this year compared to 2019. However, Drewry expects volumes to return above that level already in 2021. Vehviläinen concurs with that, noting that the logistics industry tends to be among the first businesses to bounce back after a crisis. Meanwhile, Cargotec’s own data collected from connected mobile equipment shows that the machines’ running hours are not yet back to pre-crisis levels; however, slight improvement since the end of April can be seen from the data. From a geographical point of view, Asia and Europe have recovered to some extent, but the situation in the Americas is still weak.

The crisis will boost Cargotec’s strategy and vision to become the leader in intelligent cargo handling. Digitalisation - remote services and monitoring, for example - has recently offered many opportunities for the company. Explaining the importance of data and connectivity to customers is not needed anymore, while safety and reliability concerns, among others, will strengthen automatisation and robotisation trends too. The focus on services has also proven to be a right choice as services have been holding up resiliently during the crisis.

Vehviläinen also explained Cargotec’s climate ambition to become a 1.5 degree company during the call. As stated in the release from 27 May, Cargotec commits to reduce the CO2 emissions of raw material sourcing and product use phase by at least 50 percent from the 2019 levels by 2030, and aims to carbon neutrality in its own operations by 2030. We are clearly ahead of our competitors in electrified equipment, which provides us a great business opportunity, Mika Vehviläinen concluded.

After the presentation Vehviläinen answered the questions from the analyst call participants. Cargotec’s recent announcement of divestment of RCI joint venture, supply chain situation, and demand development were the hot topics in the Q&A part.