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CEO's review

Financial Statement Report 2017 | February 8, 2018

President and CEO Panu Routila comments:

”2017 was an eventful year for Konecranes. The highlight of the year was obviously the successful completion of the MHPS acquisition back in January 2017. We were very well prepared from Day 1 of the combined operations of Konecranes and MHPS. We have had a fully-fledged integration program set up, incorporating altogether 400 initiatives with a rigorous system for follow-up. In 2017, we achieved cost synergies of approximately EUR 20 million related to the MHPS acquisition.

We have been able to maintain customer focus and I am proud to say that our day-to-day operations have not been too much distracted. We have also seen the first signs of crosspromotion of the expanded product offering boosting Port Solutions order intake. Its orders received increased from 2016, despite the comparison year including the over EUR 200 million order from the USA. Our result improvement was strong in 2017 − the Group’s adjusted EBITA rose from 184 million to EUR 216 million on a comparable basis − as the restructuring actions in 2016 and the MHPS synergy benefits supported profitability as expected. The adjusted EBITA margin for full-year 2017 was 6.9 percent (5.6). The focus of the management and the Board has been on the  improvement in EBITA margin, in particular.

Our fourth-quarter result came in line with our expectations. While the clear profitability improvement continued in Business Area Industrial Equipment, Business Area Port Solutions faced tough comparisons in terms of the adjusted EBITA. Coupled with negative currency exchange rate effect in Service, the Group’s adjusted fourth-quarter EBITA of EUR 79.9 million was slightly lower than the previous year’s EUR 85.7 million as we expected. However, the adjusted EBITA margin remained stable at 8.8 percent on a comparable combined company basis.

The comparable combined company orders received in the fourth quarter decreased by 20.5 percent year-on-year. This was driven by Business Area Port Solutions as the comparison period included the order from the Virginia Port Authority worth over EUR 200 million. Excluding the aforementioned item, Port Solutions order intake increased. The small decline in Business Area Service and Business Area Industrial order intake was attributable to negative currency exchange rate effect. It was positive to note that Business Area Service order intake grew by 3.3 percent at comparable currency exchanges rates. Furthermore, our crane component orders grew strongly in the Americas and EMEA.

The Group sales in the fourth quarter were 6.3 percent below the previous year on a comparable combined company basis. As expected, the decrease in the Business Area Port Solutions’ sales related to the timing of deliveries and exceptionally high sales of certain products in the comparison period. The sales in Business Area Service and Business Area Industrial Equipment were affected by negative currency exchange
rate effect, similar to order intake.

In the past months, we have been laying the ground for growth initiatives for 2018. Group’s order book was up 1.9 percent, or up 6.1 percent at comparable currency exchange rates, at the end of 2017. On the other hand, assuming that the current spot currency exchange rates will prevail for the rest of 2018, we expect a negative impact of approximately 3 percent on sales from the currency exchange rate changes. We expect the incremental MHPS acquisition-related synergy benefits of EUR 40–50 million to be visible in the P&L in 2018. At the same time, we are planning additional spending of approximately EUR 15 million in IT and R&D to enable harmonized processes within the company and secure our long-term competitiveness. On the other hand, we expect savings of EUR 12 million in net interests related to financing facilities as a result of refinancing the loans that was carried out in 2017.

In conclusion, I think we have a good starting point to improve our performance further in 2018 and to make progress towards our financial targets for 2020. While delivering the synergy benefits of the MHPS acquisition remains our top priority, we are now increasingly geared up for growth.”