Kalmar CMD: Waiting for independence

Translation: Original comment published in Finnish on 5/30/2024 at 7:23 am EEST.

Cargotec's Kalmar Capital Markets Day yesterday was characterized by caution in announcing new information or views, which is understandable in the period between the publication of the prospectus and the start of the stock exchange listing. However, Kalmar's strong market position, flexible cost structure, sound profitability, and ever-improving demand outlook provide a good foundation for the start of an independent Kalmar. 

Strategic pillars under review

The Capital Markets Day focused on describing Kalmar's "strategic pillars" and their role in the changing market environment. The strategic pillars are 1) investing in sustainable innovation, 2) growing services, and 3) driving excellence (excellence programs). These pillars are briefly described below. 

The market for electronic equipment is heating up

By sustainable innovation, Kalmar means in particular the dramatic change in the container handling equipment market brought about by electrification. According to a KPMG report, the market for electric equipment (EV) will grow by +28% p.a. between 2024 and 2028, and its share of the total container handling equipment market will increase from 15% (2023) to 41% (2028e). The demand for EVs is driven by the clear customer benefits of 1) increased safety and reduced life cycle costs compared to internal combustion engine powered equipment; 2) maximizing efficient operating time and performance; and 3) eliminating emissions. Kalmar's product range puts the company at the forefront of the market, with an all-electric model in every product category except for empty container handlers, where the first EV will be launched in H2'24. Kalmar's strong position is illustrated by the fact that it has already received several repeat orders for its EVs. In the customer survey, 63% of customers planned to invest in zero or low emission equipment by 2028, of which 71% (45% of the total) considered EV as the preferred option. The revenue impact of EVs is significant for Kalmar, as their unit prices are up to twice as high as those of internal combustion engine powered equipment.  

Plenty of growth potential in services

Kalmar plans strong growth in services. KPMG has estimated the service market for container handling equipment at 6.0 BNEUR in 2023, compared with 7.4 BNEUR for the equipment market. Demand for services is expected to grow at an annual rate of around +4%, which is slower than equipment (+5% p.a.), reflecting the lower maintenance requirements of EVs compared to traditional equipment. Kalmar's installed base of 65,000 equipment (of which 20% are connected to the network) and a network of 1,300 service technicians in 120 countries provide a good basis for service growth. Growth is sought, for example, by increasing the market share of the company's own spare parts service. This share was previously low (25% in 2021), partly due to Kalmar's lack of focus on the spare parts market. With active measures, the situation is improving (29% in 2023) and efforts are being made to continue this trend. Another priority area is digital solutions to improve the safety and productivity of equipment. One example is the Kalmar Insight platform, which provides the driver and customer with information on equipment utilization rates and even its individual movements to monitor efficiency, driver and site-specific data, consumption and emissions, predicted maintenance needs, etc.

Although EVs require less maintenance than conventional equipment, maintenance is more demanding and requires both more expensive parts and higher training, which is reflected in pricing. There are also additional service options available in EVs for battery replacement and charging services.

No further details provided on the content of the excellence programs

Following the structural arrangements, Kalmar has two excellence programs in place, the commercial excellence program and the operational excellence program. The commercial excellence program includes, for example, product cost optimization, and the operational excellence program includes supply chain harmonization, process improvement, and cost-saving actions. Significant potential is seen particularly in process optimization. Due to the timing, the content of these programs was not described in more detail than in the recently published prospectus. However, Kalmar intends to report on the financial impact of the programs by the end of 2024.