Cargotec’s interim report January–March 2020: Poor visibility in the challenging environment
- Coronavirus pandemic increased uncertainty, and the pandemic-related governmental actions have negatively impacted Cargotec’s business environment, orders, operations, supply chain, and deliveries. The pandemic’s impact was evident on all business areas, especially in orders as well as in Hiab’s sales and result
- Cargotec’s liquidity is strong, measures to ensure profitability are underway
- Service and software business continued to develop favorably
January–March 2020 in brief: Orders received declined
- Orders received decreased by 24 percent and totaled EUR 781 (1,022) million.
- Order book amounted to EUR 1,938 (31 Dec 2019: 2,089) million at the end of the period.
- Sales totaled EUR 858 (856) million.
- Service sales increased by 5 percent and totaled EUR 260 (249) million.
- Service and software sales represented 35 (33) percent of consolidated sales.
- Operating profit was EUR 26 (51) million, representing 3.1 (6.0) percent of sales. Operating profit includes EUR 6 (6) million in restructuring costs.
- Comparable operating profit decreased by 31 percent and amounted to EUR 40 (57) million, representing 4.6 (6.7) percent of sales.
- Cash flow from operations before financial items and taxes totaled EUR 23 (31) million.
- Net income for the period amounted to EUR 11 (31) million.
- Earnings per share were EUR 0.18 (0.48).
Outlook for 2020
On 27 March 2020, Cargotec updated its outlook for 2020 due to the coronavirus pandemic and related political decisions and administrative restrictions. In the current exceptional situation, Cargotec estimated that it is not able to give guidance for the year 2020. Cargotec publishes new guidance at a later date.
Previous guidance (given on 6 February 2020): Cargotec expects its comparable operating profit for 2020 to improve from 2019 (EUR 264 million).
In the second quarter, there are significant challenges in relation to deliveries and demand. Cargotec estimates a significant decline in orders, sales, comparable operating profit and cash flow in the second quarter compared to the second quarter of 2019. During the first weeks of April 2020, Cargotec’s orders received have significantly decreased from the comparison period. Due to the challenging operating environment, visibility towards the end of the year is currently weak.
Cargotec’s key figures
|Service orders received||270||261||3%||1,079|
|Order book, end of period||1,938||2,145||-10%||2,089|
|Service and software sales,
% of Cargotec’s sales
|Operating profit, %||3.1%||6.0%||4.9%|
|Comparable operating profit||39.5||57.4||-31%||264.4|
|Comparable operating profit, %||4.6%||6.7%||7.2%|
|Income before taxes||19.7||42.8||-54%||145.9|
|Cash flow from operations before financing items and taxes||22.8||31.0||-26%||361.1|
|Net income for the period||11.3||31.0||-63%||89.4|
|Earnings per share, EUR||0.18||0.48||-63%||1.39|
|Interest-bearing net debt, end of period||798||877||-9%||774|
|Interest-bearing net debt / EBITDA**||2.7||3.2||2.5|
|Return on capital employed
(ROCE), last 12 months, %***
|Personnel, end of period||12,473||12,194||2%||12,587|
*Software sales include the strategic business unit Navis and automation software
**Last 12 months’ EBITDA
***Cargotec has refined the treatment of the interest rate component of currency forward contracts in the calculation of return on capital employed at the end of the financial year 2019. As a result, the return on capital employed increased by 0.4 percentage points in the first quarter of 2019.
Cargotec’s CEO Mika Vehviläinen: Coronavirus pandemic has a significant effect on our business
The coronavirus pandemic defined the beginning of the year 2020 globally, and also in Cargotec’s business. The pandemic slowed our activities in China during the beginning of the year, as factories were faced with lower capacities, and the availability of components weakened. However, the situation improved towards the end of the quarter. In January–February, the market situation in Europe and the Americas, our largest markets, appeared to be reasonable, but by the end of March, market visibility had essentially weakened. Since then, the increase in the market uncertainty and the government actions to contain the pandemic have slowed customers’ decision- making and affected orders and deliveries negatively.
Orders received decreased by 24 percent compared to the comparison period. Due to uncertainty, customers have postponed their decision-making, especially in terms of large projects. At the beginning of the year our order book was strong, and, despite the challenging market environment, our sales remained at the comparison period’s level during the first quarter.
Our comparable operating profit decreased by 31 percent from the comparison period. Operating profit decreased due to a less profitable business mix, which was caused by an increased MacGregor share in sales, as well as Kalmar’s less profitable sales mix. Supply chain challenges in Kalmar’s project business and Hiab’s lower volumes also contributed to the decline.
Our service and software business continued to develop positively. Service sales increased by 5 percent and software sales by 7 percent, together constituting 35 percent of our sales. We are progressing according to our plan with the goal of increasing our service and software business.
To minimize the effects of the coronavirus pandemic, we have initiated measures to adjust our cost structure. The office workers (ca. 6,000 employees) have shifted to a four-day working week with a corresponding reduction in salaries, subject to local legislation. Until further notice and with their consent, the salaries of the company’s management have been reduced by 20 percent as of 1 April. We have also reduced the use of external services and minimized traveling. We are closely monitoring the market and global situation and are well-positioned to adjust our operations further if needed.
Our financial position is strong. As the coronavirus situation began to materialize, we prepared for the potential instability in the financing markets by drawing two-year bank loans in April from our correspondent banks with a total amount of 200 million euros.
During the crisis, it has become clear that our strategic direction and will to promote intelligent cargo handling is the right one. Our service business is advancing, with main focus in increased data usage, device connectivity, and remote maintenance issues – all things where we have made clear progress. In recent weeks, the interest in increasing efficiency through automation has become evident, and robotics and remote working in connection with port and terminal operations, for example, have materialized.
We take the coronavirus pandemic seriously and health and security issues are the top priority in all of our actions. The exceptional situation has required adaptability and resilience from our stakeholders. Our common task is to keep the cargo flow moving, thereby helping globally to secure, for example, the deliveries of critical necessities. I would like to thank our employees, customers, and partners for their efforts towards this important goal, even during these challenging circumstances.
Reporting segments’ key figures
|MEUR||31 Mar 2020||31 Dec 2019||Change|
|Corporate administration and support functions||-17.9||-12.9||-39%||-50.4|
Comparable operating profit
|Corporate administration and support functions||-10.8||-9.8||-10%||-39.5|