The markets for load handling equipment grew in 2011. Demand clearly grew for loader cranes, truck-mounted forklifts and tail lifts in particular. At the end of the year, the markets were marked by uncertain business environments, particularly in Europe.
During 2011, the number of containers handled in ports grew, even if the year’s growth forecast was revised downwards to 6.5 percent in the fourth quarter. Brisker demand for container handling equipment used in ports reflected a revival in activity. Activation of major projects reflected initially in demand for rubber-tyred gantry cranes early in the year, and continued with several agreements for larger port automation projects in the second half.
Demand was healthy for marine cargo handling equipment. While fewer new ships were ordered during the year 2011 than in 2010, larger sizes and different types of vessels had a positive impact on the need for ship-specific marine cargo handling equipment. During the first half, demand was driven by the large number of bulk vessels ordered in 2010. Demand for cargo handling equipment for bulk vessels slowed towards the end of the year, but revived for cargo handling equipment destined for RoRo and container ships.
In line with the rise in customers’ capacity utilisation rates, services markets grew throughout the year for load handling and terminals. Demand perked up for various refurbishment and modernisation projects, as well as for spare part sales. The second half saw a recovery also in services for marine cargo handling equipment.
Orders received in 2011 grew 18 percent and amounted to EUR 3,233 (2,729) million. In geographical terms, most orders were received in EMEA (Europe, Middle East, Africa). EMEA accounted for 45 (40) percent of all orders, Asia-Pacific for 33 (40) percent, while that of Americas was 22 (20) percent. With a 23 (25) percent share of orders received, service business orders grew in all market areas.
At the end of 2011, the order book totalled EUR 2,426 (31 Dec 2010: 2,356) million, which was three percent higher than at the end of 2010. Industrial & Terminal’s order book totalled EUR 1,054 million, representing 43 percent and that of Marine EUR 1,375 million, or 57 percent of the consolidated order book.
In 2011, sales grew 22 percent, totalling EUR 3,139 (2,575) million. Sales growth matched Cargotec’s guidance of approximately 20 percent. In 2011, currency rate changes had a one percent positive impact on sales compared to 2010. Services sales grew 10 percent and amounted to EUR 745 (678) million, representing 24 (26) percent of total sales. Greater delivery volumes, due to improved demand in both Industrial & Terminal and Marine segments, boosted growth in sales compared to last year. With improved capacity utilisation rates among customers, the service business saw growth in all market areas. EMEA (Europe, Middle East, Africa) represented 40 (42) percent of consolidated sales, Asia-Pacific 39 (40) and Americas 21 (18) percent. Cargotec’s target is annual sales growth exceeding 10 percent.
Operating profit in 2011 clearly grew compared to the comparison period, totalling EUR 207.0 (131.4) million, representing 6.6 (5.1) percent of sales. Thus, Cargotec attained its guidance of an approximately 7 percent operating profit margin for 2011. Operating profit includes a one-off provision of EUR 10.0 million in quality costs for Industrial & Terminal. Reasons for the quality deviation and corrective measures needed are being investigated together with the component supplier and the insurance companies. Operating profit would otherwise have reached 6.9 percent of sales. The improved profit is due to the recovery in the market environment and structural cost-savings measures by Cargotec. On the other hand, higher component prices and fixed costs burdened profitability. Cargotec’s target is to raise its operating profit margin to 10 percent.
Net financing expenses in 2011 amounted to EUR -15.1 (-29.9) million and net interest expenses EUR -16.7
(-21.7) million. The significant decline in net financing expenses was a result of favourable interest rate environment and interest rate differentials in major currencies (EUR, SEK and USD) of Cargotec’s business operations. The interest rate component of forward foreign exchange agreements used for hedging Cargotec’s currency position was EUR 5.6 (-3.0) million in 2011.
Net income in 2011 totalled EUR 149.3 (78.0) million and earnings per share EUR 2.42 (1.21).
The consolidated balance sheet total was EUR 3,120 (31 Dec 2010: 2,916) million at the end of 2011. Equity attributable to equity holders was EUR 1,173 (1,065) million, representing EUR 19.12 (17.37) per share. Tangible assets on the balance sheet were EUR 283 (292) million and intangible assets EUR 981 (839) million. The total equity/total assets ratio increased to 43.3 (42.7) percent. The rise in intangible assets is due to the Navis acquisition.
Return on equity (ROE) in 2011 was 13.3 (8.0) percent and return on capital employed (ROCE) 13.3 (8.6) percent.
Cash flow from operating activities, before financial items and taxes, in 2011, totalled EUR 166.3 (292.9) million. During the financial period, the dividend payment totalled EUR 37.4 (27.9) million. Net working capital increased from EUR 43 million to EUR 144 million during the financial period. Due to the nature of the business, growth in Industrial & Terminal ties more working capital than in Marine. Gearing rose from 16.0 percent to 25.4 percent. Payment of Navis acquisition in March increased the gearing. Cargotec’s target is to keep gearing below 50 percent over the cycle.
Cargotec’s financing structure and liquidity are healthy. In September, Cargotec further strengthened its liquidity by signing two long-term credit facilities totalling EUR 120 million. Of this, EUR 50 million was drawn in September and EUR 70 million in October. These credit facilities will mature in 2018–2021. In January, Cargotec signed a EUR 300 million five-year revolving credit facility, which was undrawn at the end of the year. This replaced an undrawn EUR 300 million facility that would have matured in May 2012.
In February, Cargotec continued repurchases, started in September 2010, of its EUR 100 million domestic bond with a EUR 10 million buyback. After this repurchase, EUR 12.2 million of the bond remains on the market.
Interest-bearing net debt at the end of 2011 was EUR 299 (31 Dec 2010: 171) million. Interest-bearing debt amounted to EUR 512 (502) million, of which EUR 98 (97) million was current and EUR 414 (405) million non-current debt. On 31 December 2011, the average interest rate on the loan portfolio was 3.7 (3.5) percent. Cash and cash equivalents, loans receivable and other interest-bearing assets totalled EUR 213 (31 Dec 2010: 330) million.
Key figures on financial performance, including comparison data, are shown in their entirely under the section Key figures of the consolidated Financial statements.
Research and product development expenditure in 2011 totalled EUR 60.0 (37.1) million, representing 1.9 (1.4) percent of sales and 2.0 (1.5) percent of all operating expenses excluding restructuring costs. Increase in research and product development expenditure, of which Navis accounted for approximately EUR 11 million, is a result of focused investments in improvement of competitiveness.
In 2011, Cargotec was active in the Finnish Metals and Engineering Competence Cluster, an open innovation platform deepening collaboration between these various organisations. Examples of the results of such cooperation include a parametric and configurable hatch cover model developed by Cargotec. This reduces the design lead time from eight weeks to one or two days. Cargotec also participates in various programmes covering energy efficiency, use of information technology and future services.
Product development within Industrial & Terminal saw continued investment in the further development of energy efficient solutions and solutions for emerging markets. New products introduced in 2011 include a more environmentally friendly hooklift, which optimises energy and operating efficiency and a new stiff boom hoisting crane for emerging markets. This new speedy crane has compact dimensions. In addition, a new heavy loader crane was introduced to customers. The new heavy lifter provides a longer outreach and smoother operation than other cranes in its capacity range.
Terminal tractors’ options for energy efficiency were improved. Starting in 2012, off road terminal tractors sold outside North America will include, as standard, a fuel saving option that can save as much as 15 percent in fuel consumption and reduce 9,000 kg of CO2 emissions per year. Terminal tractors delivered from 2009 onwards can also be retrofitted with this option. In addition, within port automation there have been improvements in areas such as software architecture. This will enable faster, more flexible implementation of applications for customers, as well as improved after sales support. Hand in hand with the launch of its G-generation medium forklift truck range, Cargotec introduced the EGO cabin design, with considerable improvements to driver safety and ergonomics. In November Cargotec announced a cooperation agreement with Singapore Technologies Kinetics Ltd, to develop automated port equipment for container terminal customers.
Marine's product development focus lay in developing new product models, improving the performance of equipment already in the product range and lowering product costs. In addition, development work continued on electrical cranes and hatch covers as well as self-loading systems. Cargotec has participated in a concept study initiated by DNV (Det Norske Veritas). This aims to introduce innovative solutions that increase efficiency and reduce the environmental impact of bulk ship operations. New solutions meeting these requirements were introduced to the markets. During the financial period, the first car carriers with fully electronic MacGregor RoRo equipment were delivered from Japan. Cargotec, in collaboration with A.P. Møller Maersk A/S, has developed a new, safe and efficient fully automated dual-function twistlock. The parties entered into a frame agreement which covers the delivery of 1.6 million fully-automated dual-function twistlocks during the next two to three years. Cargotec introduced a new innovative Chain Wheel Manipulator for anchor handlers. This is a remotely-controlled device that keeps crew members clear of potentially hazardous operations and delivers cost effective ways of working. In this way, it improves a vessel’s profitability.
Capital expenditure in 2011, excluding acquisitions and customer financing, totalled EUR 47.0 (43.9) million. Investments in customer financing were EUR 29.6 (16.4) million. Depreciation, amortization and impairment in 2011 amounted to EUR 63.3 (60.4) million.
Cargotec is investing approximately EUR 35 million in building an innovative Technology and Competence Centre in Tampere, Finland, during the years 2011–2013. Some EUR 10 million was invested in 2011. The centre forms part of Cargotec's global network of competence centres and will develop port terminal solutions for the benefit of customers. The site will host Cargotec's most extensive test area. This new centre is due become operational in December 2012.
In November 2010, Cargotec acquired the assets of a Swedish installation and service company, Hallberg-Ivarsson Hydraulik & Påbyggnad AB, located in Gothenburg. The company specialises in installation and services for on-road load handling equipment and heavy vehicles. The deal was closed in early January.
In December 2010, Cargotec became a majority shareholder in Cargotec Terminal Solutions (Malaysia) Sdn. Bhd. (former Kalmar (Malaysia) Sdn. Bhd.) by increasing its ownership in the company from 50.0 to 69.9 percent. The deal was closed in early January.
At the end of January, Cargotec announced the acquisition of US-based terminal operating systems provider Navis. The transaction value was approximately USD 190 million (approximately EUR 130 million). The company has more than 300 employees, the majority of whom are located in the United States and India. The acquisition was completed in March after regulatory approvals were received. Cargotec consolidated Navis’ results for the first time in Industrial &Terminal reporting segment’s second quarter figures as of 19 March 2011. The re-measurement of deferred revenue in Navis acquisition date balance sheet decreases the post-acquisition sales and profitability of Navis by approximately EUR 10 million for slightly over one year when consolidating into Cargotec.
In November, Cargotec and Komas signed a letter of intent which outlined the guidelines for deepening the companies’ cooperation as a long-term sourcing partnership. According to the agreement, Komas acquires Cargotec’s component manufacturing operations in Narva, Estonia. All approximately 370 employees will transfer to Komas. The deal is expected to be closed in February 2012.
Cargotec employed 10,928 (31 Dec 2010: 9,954) people at the end of 2011. Industrial & Terminal employed 8,290 (7,310) people, Marine 2,122 (2,191) and corporate-level support functions 516 (453). The average number of employees in 2011 was 10,692 (9,673). Acquisitions increased the Industrial & Terminal headcount by close to 500 people. Part-time personnel represented 2 (2) percent of employees. 16 (16) percent of personnel were female and 84 (84) percent male.
At the end of 2011, 17 (20) percent of the employees were located in Sweden, 10 (10) percent in Finland and 30 (30) percent in the rest of Europe. Asia-Pacific personnel represented 28 (25) percent, North and South American 13 (11) percent, and the rest of the world 2 (2) percent of total employees.
Salaries and remunerations to employees totalled EUR 419 (364) million in 2011.
In 2011, global initiatives and actions were planned and implemented according to the people strategy’s key priorities. In this way, it was ensured that these measures contributed directly to achieving Cargotec’s strategy and business targets. A strong focus was placed on leadership development, talent and performance management, and employee engagement. The people strategy’s fundamental goals are to attract and retain key talent, enhance performance culture in Cargotec, and maximise employee engagement across the organisation.
Cargotec Compass, the first global employee survey in Cargotec, was introduced in 2010. A follow-up survey conducted in 2011 measured how widely Compass team discussions, action planning and some key people processes were completed, and how the working together culture had improved. Communications and information flow were flagged as areas in need of development. Special attention has been paid to internal communications, both at team and company level. The strategy communications initiative held in 2011 has contributed to a broader understanding of both team-level and individual goals.
In October, Cargotec announced plans to change its operating model. This was intended to accelerate the strategy’s implementation and streamline the organisation of centralised Support functions and central Supply. The greatest need for personnel adjustments was in Finland and Sweden. The cooperation negotiations with employee representatives resulted in 28 personnel reductions in centralised Support functions and central Supply in Finland. The cooperation negotiations concerning these functions in Sweden were still ongoing at the beginning of 2012. The shared financial services operations were decided to be outsourced and will result in reductions of some 50 jobs. Earlier in the year 2011, minor personnel adjustments due to operational changes were made in various countries of operation. Measures taken to promote the re-employment of affected employees include training opportunities and internal transfers.
During the second quarter, Cargotec Finland Oy received an action brought against the co-operation procedure at Salo factory in 2008. Cargotec finds the action unfounded and inappropriate, denies non-compliance and has made no provision relating to the action.
Cargotec’s key strategic focus is on achieving stronger customer focus globally. In the future, operational development will be based on customer segmentation. Container terminals, merchant shipping and offshore have been selected as the first customer segments, in which to invest in forthcoming years.
In July, Cargotec announced plans to establish a joint venture with its long-term partner, Jiangsu Rainbow Heavy Industries Co., Ltd. (RHI) in China. The joint venture would provide leading heavy crane solutions globally, expand delivery capacity and bring new growth opportunities to the Chinese and global markets. Cargotec's ownership in the joint venture would be 49 percent and the value of Cargotec's equity investment approximately EUR 30 million. In connection with the establishment of the joint venture, Cargotec plans to strengthen its strategic partnership with RHI by becoming an owner in the company. Cargotec also plans to acquire a 49 percent interest in China Crane Investment Holdings Limited for approximately EUR 50 million. China Crane currently owns 18.75 percent of shares in RHI. The joint venture will begin operating in 2012, after regulatory approvals have been received.
In order to promote customer focus, Cargotec decided to establish a competence centre for container terminals development in Singapore. The new global competence centre will further strengthen the ability to provide total solutions for customers in the whole Asia-Pacific region.
During the first quarter, Cargotec specified its definition of services, as part of its reorganisation and internal unification of its services business. This slightly reduced the service activities previously calculated under Marine segment, while correspondingly lowering the comparative share of Marine services business.
Greater internal clarity is another core strategic area. To this end, efforts focused on the development of common processes and ways of working. Development and implementation of the company-wide ERP system and related processes progressed according to plan during the year.
In October, Cargotec announced plans to accelerate the implementation of its strategic initiatives by changing its operational model. At the beginning of 2012, Industrial &Terminal was divided into two new business areas: Terminals and Load Handling. Cargotec’s Supply organisation, which developed factory operations and related sourcing activities, was divided into the new business areas.
The following changes were made in Executive Board’s responsibilities when changing the operational model: Business area Terminals is led by Unto Ahtola as Executive Vice President, Terminals. Unto Ahtola was previously responsible for business area Industrial & Terminal. Axel Leijonhufvud was appointed to lead the new business area Load Handling as Executive Vice President, Load Handling. He was previously responsible for Supply. Business areas Marine and Services will continue unchanged. Kirsi Nuotto is responsible for Human Resources. There were no other changes in Executive Board’s responsibilities from 1 January 2012. Anne Westersund, Vice President, Communications and Marketing, reports to President and CEO Mikael Mäkinen from 1 January 2012. However, she is not a member of Executive Board. Cargotec’s external financial reporting segments will be Marine, Terminals and Load Handling. These changes will be effective from 1 January 2012. Comparative figures will be provided before reporting the figures for Q1/2012.
Cargotec has analysed the environmental impacts of its operations and its products and concluded that the most significant impacts from its operations are generated through the use of its products by customers. Interviews with top management and senior level executives in businesses, as well as received customer feedback, supported this view. Therefore Cargotec has decided that the main focus of its sustainability work is on enhancing customers’ sustainability. The environmental load caused by Cargotec’s products is at its largest towards the end of the value chain. The most significant environmental impacts of Cargotec’s own processes are related to those originating from the operations of the assembly units, transportation, commuting to and from work, and business travel. As a global operator, Cargotec has identified the challenges related to the management of environmental issues in the countries where the company is present. Cargotec’s aim is to achieve the best possible practices taking into account the local circumstances.
Cargotec’s health and safety management and environmental management are in line with Cargotec strategy, which is defined by Cargotec Executive Board. Corporate EHS function is responsible for ensuring and developing processes and EHS target setting globally. Human resources is responsible for managing health practices and well-being activities globally. Business and line organisations are responsible for adapting common environmental, health and safety processes to local operations.
In 2011, Cargotec re-evaluated the Pro Future™ criteria, which are now used to analyse environmental impacts on a larger scale than previously. Within each category, the product or service with the highest score offers the most significant benefits. The criteria have now been developed in such way that it is possible to employ them in the development of all future Cargotec products. Thus, they also serve as a tool for research, development and engineering purposes. Pro Future™ is a key measure in Cargotec’s commitment to reducing the use of fossil fuels in its equipment by ten percent, through the Clinton Global Initiative. The Pro Future™ criteria are also indicative of Cargotec’s commitment to reducing greenhouse gas emissions. In 2011, Cargotec deepened its collaboration with VTT, Technical Research Centre of Finland, in order to commission a neutral perspective on its assessment of the environmental impact of the company’s products. The aim of such collaboration is to confirm that Cargotec’s Pro Future™ analysis correctly reflects the way in which environmental impacts should be monitored, both in terms of order of priority and relative importance.
Cargotec’s own operations have a relatively minor effect on the environment – and one which the company is making continuous efforts to reduce. Cargotec is actively monitoring the environmental, health and safety impacts of its operations. In managing environmental impacts, as well as in issues concerning quality, health and safety, Cargotec relies on its certified environmental, quality and safety systems. Almost all assembly units are using the key environmental, occupational health and safety indicator monitoring system. A report on the related results is published annually, on Cargotec’s website.
In order to limit indirect energy consumption, Cargotec employs tools to enable web conferences and phone meetings, and encourages all Cargotec personnel to use these rather than travelling. This has been instituted on the level of company policy and all business-related air travel emissions are monitored accordingly. When constructing new facilities and developing new products, Cargotec engages with pioneering environmental initiatives, whenever possible. A good example of this is Cargotec’s forthcoming technology and competence centre in Tampere, Finland. The building and facilities will embody a high level of energy efficiency and emission-cutting standards and practices
The objective of Cargotec’s internal control is to ensure that management decisions are implemented, decision making is sound and appropriate and that personnel comply with company policies as well as non-company regulations and laws. Cargotec’s internal control is based on its values and the Code of conduct.
In Cargotec, risk management is part of internal control operations. Revised in the autumn of 2010, the Risk management policy provides a structured account of risks and risk management. The objective of the value-based revision was to link risk management more strongly with key business and support processes and management systems, while creating proactive, systematic risk management practices. In 2011, the main focus area in corporate risk management was to implement the revised risk management policy.
Responsibility for risk management is distributed within Cargotec as follows: The Board of Directors is responsible for ensuring the organisation of sufficient risk management and control. The President and CEO and Executive Board are responsible for the implementation of this risk policy and for the risk management process of Cargotec as a whole. As far as it is possible and practical, risk management is conducted in business units and support functions when running day-to-day processes. Identification, assessment, treatment planning and reporting are incorporated in planning and decision-making processes. The Corporate Risk Management function’s role is to develop and coordinate the overall risk management framework and process. The Risk Management function also is responsible for facilitating the final risk assessment and consolidation of risk reports, as part of the annual planning and budgeting process and strategy process. Financial risks are centrally managed by Corporate Treasury.
Strategic and business risks are related to business cycles in the world economy and Cargotec’s customer sectors, the availability of raw materials and components and the related price trends, mergers and acquisitions, and the operations of dealers and subcontractors. In addition, the ever clearer shift in operations towards emerging markets requires risk management, not only concerning the shift but also actual operation in these markets.
Operational risks relate to personnel, processes, contracts, products, information technology and practices. The materialisation of operational risks may result in business interruptions, delivery delays, cost excess, quality problems or product liability claims. First and foremost, Cargotec’s main operational risk management measures involve better product safety and business processes, in order to ensure business continuity. With respect to key person risks, succession plans for leadership and key assignments are updated on an annual basis, for the purpose of ensuring continuity in operations.
Main safety and hazard risks include risks related to people, property, business interruptions, intellectual property and logistics. Cargotec has worldwide insurance covering all units.
For more detail description of financial risks, see note 3, Financial risk management of the consolidated Financial statements.
Orders received in 2011 grew 33 percent, totalling EUR 2,240 (1,690) million. Orders increased in all geographic areas, mainly in Asia-Pacific. In terms of unit numbers, reachstacker orders were at an all-time high. Additionally, during the period Industrial & Terminal secured a high number of individual orders, which are typical of the Industrial business in particular. Order book grew 55 percent during the year thanks to brisk demand, totalling EUR 1,054 (31 Dec 2010: 680) million at the end of 2011.
In October, Cargotec was chosen as the preferred partner to supply 40 automatic stacking cranes with the related technology, and 28 shuttle carriers, to DP World's deepsea container port London Gateway. This order is significant to Cargotec’s port business and will strengthen the company’s position as a leader in the field of port automation. During the fourth quarter, Cargotec also agreed on the delivery of four ship-to-shore cranes and 10 rubber-tyred gantry cranes (RTG) to Mexico, as well as of eight rubber-tyred gantry cranes to the Philippines. In addition, Cargotec delivered 80 loader cranes to a Mexican oil company.
In September, Cargotec signed an agreement for port automation in the US. The contract includes the delivery of ten automatic stacking cranes and 17 automatic shuttle carriers. Cargotec also received its first ever order for ship-to-shore cranes for West African ports. Four cranes will be delivered during the third quarter of 2012 and the contract includes an option for the delivery of four more cranes. In addition, Cargotec entered in September into a five-year frame agreement with the U.S. Department of Defense to supply approximately 1,890 light capability rough terrain forklifts. The total value of the agreement is estimated at around USD 160 million (EUR 113 million). Cargotec will book the order during the five-year time frame, as delivery orders are received. During the third quarter, also an order for over 50 port equipment was received from Venezuela.
In March, Cargotec signed a long-term frame agreement with Siemens Wind Power A/S, for custom-made Hiab cranes that will be used for the service and maintenance of wind turbines.
In 2011, sales grew 26 percent and amounted to EUR 1,929 (1,526) million. Sales for services grew 12 percent to EUR 564 (505) million, representing 29 (33) percent of sales. Thanks to the order book and the recovery of the market environment, clear growth was seen in delivery volumes during the reporting period.
Operating profit for Industrial & Terminal in 2011 clearly improved and amounted to EUR 76.5 (28.8) million, representing 4.0 (1.9) percent of sales. Comparative figure includes EUR 8.3 million in restructuring costs. Operating profit includes a one-off provision of EUR 10 million in quality costs. Reasons for the quality deviation and corrective measures needed are being investigated together with the component supplier and the insurance companies. Operating profit would otherwise have reached 4.5 percent of sales. Operating profit margin during 2011 was affected by a significant increase in research and product development spending due to sizeable investments in automation technology. Research and development expenditure in Navis was approximately EUR 11 million. In addition, margin was affected by higher component prices and fixed costs, during a period of tight competition.
Orders received in 2011 declined four percent and totalled EUR 997 (1,040) million. New orders were mainly received for equipment for bulk and general cargo vessels as well as container ships. Offshore support vessels-related orders showed some signs of recovery. 69 percent of orders were received in Asia-Pacific, reflecting the concentration of shipbuilding mainly in China, South Korea and Japan. Major orders included orders from South Korean shipyards for hatch covers and container lashings worth EUR 25 million, orders for cargo cranes worth EUR 20 million, as well as an order for RoRo equipment worth more than EUR 20 million. Also included were orders from Chinese shipyards for cargo cranes worth EUR 25 million and orders for more than 50 electric cargo cranes. In addition, Cargotec signed agreements for the delivery of RoRo equipment for three container/RoRo vessels and two navy vessels. Cargotec also received orders for three Siwertell unloaders to Morocco and India worth approximately EUR 40 million in total.
Due to high deliveries and decreased new orders, Marine’s order book declined by 18 percent from the 2010 year-end, totalling EUR 1,375 (31 Dec 2010: 1,675) million at the end of 2011. More than 70 percent of the order book is bulk, general cargo and container ship-related. Offshore support vessels-related orders comprise around 10 percent of the order book.
Sales in 2011 grew to EUR 1,213 (1,050) million, of which EUR 181 (173) million was services sales, representing 15 (16) percent of sales. A strong order book and successful project deliveries expedited growth in sales.
Operating profit in 2011 amounted to EUR 176.2 (147.4) million or 14.5 (14.0) percent of sales. This profitability is reflecting successful deliveries based on a strong order book.
During the second quarter, Mitsubishi Heavy Industries Shimonoseki shipyard gave Marine Offshore business and the Japanese team the Best Supplier 2010 award. The shipyard chooses the best supplier every year. The reward has traditionally been given to a Japanese supplier, and therefore, this can be considered an important recognition.
Cargotec Corporation’s Annual General Meeting (AGM) on 8 March 2011 approved the 2010 financial statements and consolidated financial statements and discharged the President and CEO and members of the Board of Directors from liability for the accounting period 1 January–31 December 2010. The AGM approved the proposals by the Board to authorise the Board to decide on the repurchase of own shares and the issuance of treasury shares. The Board has also the right to decide on the transfer of the shares in public trading on NASDAQ OMX Helsinki Ltd. Both authorisations shall remain in effect for a period of 18 months from the AGM’s resolution. More detailed information on the authorisations was published in a stock exchange release on the date of the AGM, 8 March 2011.
The AGM approved the payment of a dividend of EUR 0.60 per class A share and EUR 0.61 per class B share outstanding. The dividend was paid on 18 March 2011.
The number of members of the Board of Directors was confirmed at seven. Tapio Hakakari, Ilkka Herlin, Peter Immonen, Karri Kaitue, Antti Lagerroos, Teuvo Salminen and Anja Silvennoinen were re-elected to the Board of Directors. The meeting decided that a yearly remuneration of EUR 80,000 be paid to the Chairman, EUR 55,000 to the Vice Chairman and EUR 40,000 to other Board members. In addition, it was decided that members should receive EUR 500 for attendance of Board and Committee meetings and that 30 percent of their yearly remuneration would be paid in Cargotec Corporation’s class B shares, with the rest paid in cash.
Authorised public accountants Johan Kronberg and PricewaterhouseCoopers Oy were re-elected as auditors.
The AGM decided to amend Cargotec's Articles of Association so that the notice of a shareholders' meeting must be published on the company's website, no earlier than three months prior to the record date of the meeting and no later than three weeks prior to the meeting itself, provided that the date of publication is at least nine days prior to the meeting’s record date.
On 8 March 2011, the Board of Directors elected Ilkka Herlin to continue as Chairman of the Board and Tapio Hakakari as Vice Chairman. Outi Aaltonen, Senior Vice President, Cargotec’s General Counsel, continues as Secretary to the Board of Directors.
The Board of Directors elected among its members Ilkka Herlin, Karri Kaitue, Anja Silvennoinen and Teuvo Salminen (chairman) as members of the Audit and Risk Management Committee (former Audit Committee). Board members Tapio Hakakari, Ilkka Herlin (chairman), Peter Immonen and Antti Lagerroos were elected to the Nomination and Compensation Committee.
Cargotec Corporation’s share capital totalled EUR 64,304,880 at the end of 2011. The number of class B shares listed on NASDAQ OMX Helsinki Ltd. was 54,778,791 while that of unlisted class A shares totalled 9,526,089. The amount includes 2,959,487 own class B shares held by the company, accounting for 4.60 percent of the share capital and 1.97 percent of the total voting rights of all shares. The shares were repurchased in 2005–2008. The number of issued class B shares, excluding treasury shares held by the company, totalled 51,819,304 at the end of 2011. On 31 December 2011, class B shares accounted for 85.2 (85.2) percent of the total number of shares and 36.5 (36.5) percent of votes. Class A shares accounted for 14.8 (14.8) percent of the total number of shares and 63.5 (63.5) percent of votes. Total number of votes attached to all shares was 15,002,008 (15,002,570). At the end of 2011, Cargotec Corporation had 20,893 (16,982) registered shareholders. There were 8,500,096 (12,831,581) nominee-registered shares, representing 13.22 (19.95) percent of the total number of shares, which corresponds to 5.67 (8.55) percent of all votes.
On 8 March 2011, the Board of Directors decided to exercise the authorisation conferred by the AGM to acquire own shares. However, no own shares were repurchased in 2011.
In March 2010, the Board of Directors decided to establish a share-based incentive programme. This programme aims to ensure alignment of the objectives of shareholders and executives in order to increase the value of Cargotec, while committing executives to the company and offering them a competitive incentive programme based on ownership in the company.
The programme includes three earnings periods, each lasting three calendar years, which commence in 2010, 2011 and 2012. The Board of Directors will decide on the target group, earnings criteria and the targets to be established for them, as well as the maximum amount of reward payable for each earnings period. Earnings criteria for the earnings period 2010–2012 comprise Cargotec’s operating profit margin and sales for the fiscal year 2012. For the second earnings period 2011–2013, the earnings criteria are the operating profit margin and sales for the fiscal year 2013. The programme’s first two earnings periods cover the members of Cargotec’s Executive Board. No decision has been made on the criteria or target group for the third earnings period.
The potential reward will partly be paid as Cargotec’s class B shares and partly in cash in 2013, 2014 and 2015. The proportion to be paid in cash is intended to cover taxes and tax-related costs arising from the reward. Rewards to be paid on the basis of the earnings periods 2010–2012 and 2011–2013 will correspond to a maximum total of 200,000 Cargotec class B shares (including the proportion to be paid in cash).
In the spring of 2011, the Board of Directors decided to alter the terms of its share-based incentive programme in such a way that persons covered by the bonus system receive full rights to rewarded shares at the time of payment. The terms of the share-based incentive programme forbidding the transfer of shares for two years from each reward payment were removed. In this way, the programme’s duration for each share lot was shortened from five to three years.
In March 2010, the AGM confirmed that stock options will be issued to key personnel of Cargotec and its subsidiaries. The Board decides on the target group, earnings criteria and option issuance on an annual basis, in the spring of the years 2010 (2010A stock options), 2011 (2010B stock options) and 2012 (2010C stock options). The maximum total number of stock options issued will be 1,200,000. The share subscription period for stock options 2010A will be 1 April 2013–30 April 2015, for stock options 2010B, 1 April 2014–30 April 2016 and for stock options 2010C, 1 April 2015–30 April 2017.
In spring 2011, the Board of Directors decided to issue 2010B stock options to around 80 persons, including members of Cargotec’s Executive Board. For the share subscription period for 2010B stock options to begin, the performance targets established by the Board must be attained. Stock options for which the targets are not attained will expire.
In line with the Board’s decision, should the operating profit for 2011 range between EUR 205–230 million, the number of shares offered for subscription will be defined linearly, up to EUR 230 million in operating profit. With operating profit of EUR 207 million entered for 2011, share subscription will begin with 29,136 2010B stock options in April 2014, as per the terms and conditions of the option programme. The share subscription price for stock option 2010B is EUR 31.23/share. Dividends will be deducted from the share subscription price each year.
For more detailed description of the option programme, see Note 27 Share-based payments, of the consolidated Financial statements.
At the end of 2011, the total market value of class B shares was EUR 1,191 (2,023) million, excluding treasury shares held by the company. The year-end market capitalisation, in which unlisted class A shares are valued at the average price of class B shares on the last trading day of the financial period, was EUR 1,410 (2,390) million, excluding treasury shares held by the company.
The class B share closed at EUR 22.98 (39.03) on the last trading day of 2011 in NASDAQ OMX Helsinki Ltd. The volume weighted average share price in 2011 was EUR 26.79 (26.08), the highest quotation being EUR 39.60 (39.37) and the lowest EUR 16.35 (19.16). In 2011, a total of more than 58 (47) million class B shares were traded on NASDAQ OMX Helsinki Ltd., corresponding to a turnover of EUR 1,564 (1,226) million. The average daily trading volume of class B shares was 230,397 (186,891) shares or EUR 6,182,769 (4,864,852).
In addition to NASDAQ OMX Helsinki Ltd., a total of 45 (35) million class B shares were traded on several alternative market places, corresponding to a turnover of EUR 1,205 (886) million. Shares were mainly traded in Chi-X and BATS Europe.
The loans Cargotec has granted to Moving Cargo Oy for the financing of a top executive incentive programme, totalled EUR 3.5 million on 31 December 2011. Owners of Moving Cargo Oy include members of Cargotec Executive Board. Cargotec has granted no other special benefits, nor has it made other corresponding arrangements with parties belonging to its inner circle.
For further information on the terms of the loan, see note 35, Related-party transactions, of the consolidated financial statements.
The election of the members of the Board of Directors and the auditor and their remunerations as well as changes in the Articles of Association, are decided by the Annual General Meeting of Shareholders. The Board of Directors elects Cargotec’s President and CEO and determines the terms of his/her employment. The period of notice of the President and CEO is six months and he has the right to compensation for termination of employment of 12 months’ salary.
Developments in the global economy and cargo flows have a direct effect on Cargotec’s business environment and customers’ willingness to invest. Economic development for 2012 is characterised by considerable uncertainty. This affects Europe in particular and could be amplified by risks associated with foreign exchange market volatility and the financial sector. The uncertainty impinges on Cargotec's ability to forecast, and could quickly lead to weaker demand for its products and bleaker short-term prospects.
During previous economic downturns, softening of the markets has first become evident in demand for load handling equipment. These products have an order lead time of three to four months, whereas this is clearly longer for other Cargotec products. If demand weakens rapidly, Cargotec will not necessarily be able to react quickly enough, which could erode profitability.
Credit loss levels can rise alongside deterioration in the market situation. In addition, liquidity among customers could diminish as credit availability tightens. Cargotec is dependent on component suppliers. Deterioration in their economic situation could lead to delivery problems.
During 2012, Cargotec is engaged in several major port automation projects. In order to manage the associated business risks, these require close management of both the project itself and, in particular, the supply chain.
Although an order book looking over a year ahead benefits forecasting in Marine, in the current market new vessel orders could remain low for economic and financial reasons. This would have a delayed impact on Marine's business activities. Around EUR 100 million of the segment’s orders could be subject to a risk of postponement or cancellation.
The parent company’s distributable equity on 31 December 2011 was EUR 832,012,986.20 of which net income for the period was EUR -31,291,932.71. The Board of Directors proposes to the AGM convening on 19 March 2012, that of the distributable profit, a dividend of EUR 0.99 of each of the 9,526,089 class A shares and EUR 1.00 for each of the 51,819,304 outstanding class B shares be paid, totalling EUR 61,250,132.11. The remaining distributable equity, EUR 770,762,854.09 will be retained and carried forward.
No significant changes have occurred in the Cargotec’s financial position after the end of the financial year. Liquidity is good and the proposed distribution of dividend poses no risk on the company’s financial standing.
Cargotec expects its 2012 sales to grow and operating profit margin to improve compared to 2011.
Cargotec Corporation’s Annual General Meeting will be held at the Marina Congress Center in Helsinki, Finland on Monday, 19 March 2012 at 1.00 pm EET.
Helsinki, 7 February 2012
Cargotec Corporation
Board of Directors