Reporting from Paul Avery and Vincent Champion:

Following the cancellation of the planned merger with Konecranes, Cargotec has disclosed at an investor conference this morning that it will offer the “heavy port cranes” business – Kalmar ASCs/ARMGs, RTGs/ARTGs – for sale; the MacGregor business – for which prospects are good – will likely be offered for sale as well.

“We realised early on in the merger application process that it would be an uphill struggle getting it past all the competition authorities, so we drew up an alternative strategy,” said Cargotec CEO Mika Vehviläinen, at an online investor conference hosted in Helsinki today.

For the record, and with reference to the UK Competition and Markets Authority (CMA) decision announced yesterday, Cargotec had told the CMA that its “counterfactual” assumption that if the merger does not proceed both parties would continue to operate basically unchanged was not correct. Cargotec produced Board minutes and other documents in an effort to convince the CMA that it did not intend to keep operating in all the areas it does today, but exactly what was disclosed has been redacted from the publicly released material.

In any event, the CMA was not convinced Kalmar would go through with any action that would lessen competition if the merger did not proceed. That judgement was a mistake, and Kalmar is essentially exiting STS and yard cranes in all markets.

Cargotec’s new strategy is to focus on the most profitable areas of the Kalmar business, together with the Hiab division. As far as Kalmar is concerned, the focus will be on counterbalanced lift trucks and horizontal transport – straddle carriers and terminal tractors. The same three own production facilities will be retained – the MAU in Poland (CB lift trucks, straddle carriers and some tractors), Kalmar Ottawa tractor plant in Kansas, and Bromma spreaders plant in Ipoh, Malaysia.

If a buyer cannot be found for the heavy port crane business, it will be “ramped down.” The existing order backlog runs to 2024-25, but no new orders will be taken. Service support for existing equipment and orders in hand will continue to be offered, but in the port cranes sector service & maintenance is heavily unionised and Kalmar service revenue from the sector is not a big contributor to overall sales.

Cargotec disclosed that Kalmar heavy port cranes had sales of €97M in 2021 and a comparable operating loss of 20.8%.  The order book at the end of 2021 came to €151M. As for MacGregor, the BU had sales of €553 in 2021, on which it made a loss of 2.7% and the order book at the end of the year came to €560M.

The new structure would put Kalmar in a much more profitable position. Without Kalmar heavy cranes and Macgregor “we would have been a profitable company with a 10.1% margin, and that is the way over the last eight years,” Vehviläinen said.

Kalmar invested heavily in developing ASCs and ARTGs with a view to leveraging competence in automation to win more orders. Yard cranes, and at one point STS cranes, were also an important part of Kalmar’s strategy for a pre-integrated automated terminal system that included ASCs and Shuttle Carriers. Vehviläinen said the market is moving in a different direction, and with most automaton projects now at brownfield terminals, there are very limited opportunities to sell a package of yard cranes and horizontal transport.

Kalmar was still, however, a significant player in the gantry crane market. Data from WorldCargo News November 2021 yard crane survey show it delivered 94 RTGs in 2020, 34 in 2021 and had 37 RTGs on order for delivery in 2022/23 to nine different customers. This includes five automated RTGs to Dublin Ferryport Terminals in Ireland. Kalmar also had 20 ASCs on order for delivery to four different customers in the period 2022 to 2024.

Kalmar will continue to offer its TLS automation software for yard crane terminals, but without the cranes it is hard to see Kalmar being a player in the trend towards yard crane automation. There is no escaping that the industry as a whole will lose much of the benefit of Kalmar’s significant investment in R&D for yard crane automation in recent years.

For Cargotec, the yard heavy crane business is asset-light in any case, as it pulled out of the Rainbow Cargotec joint venture in 2020. “At a high level, the JV was good business, but it never achieved good profitability or the sales we expected,” said Vehviläinen. Profitability is very low due to price-led competition from China, steel structure content is very high, and the buyers tend to be powerful GTOs, who also drive prices down.

The crucial difference between the new structure and the one under the proposed merger is that the Kalmar straddle business – including shuttle carriers, automated straddle and shuttle carrier products and associated software and automation systems – will be retained. Kalmar currently has a lead in straddle carrier automation, and Vehviläinen said Cargotec is very happy with the quality of the straddle business.

Going forward, Vehviläinen sees a bright future for Hiab and the Kalmar businesses being retained. With the focus on climate change and decarbonisation, electrification, robotisation and digitisation will drive these businesses forward and they are business areas where Cargotec already has a string technological focus and edge on its competitors.

Last year the Kalmar BU minus port cranes had sales of €1,365M, operating profit of 10.1% and closed the year with an order backlog of €1,151M. For Hiab, the figures were respectively €1,250M, 13.3% and €985M. Service for the two BUs amounted to 31% of sales and the prospects for growth in service are very good. Unlike port cranes, the customer base is diversified – heavy industry and logistics businesses as well as ports – and it is much easier to obtain service and maintenance contracts. The prospects for M&A in the Hiab sector are also very good.

Compared to port cranes, the Hiab and all the other Kalmar products have relatively short lives, so the replacement market will always be very active. “Capture rates” for maintenance contracts are much higher, too.

While MacGregor would have been part of the merger with Konecranes, it is now being considered for sale, although no decision has yet been taken. Vehviläinen said that unlike in 2012, when a sale was previously considered, the prospects for MacGregor are very good. “The MacGregor business is set to grow, but it does not fit with our focused strategic direction,” said Vehviläinen.

He congratulated the MacGregor team on successfully integrating the TTS portfolio. Unlike heavy port cranes, the MacGregor business is attractive to potential buyers. The buyers would likely come from Korea or Japan, or China. There appears to be nothing in the JV with CSSC Nanjing that prevents Cargotec selling its share, he said.