CEO's review

Financial Statement | February 7, 2019

President and CEO Panu Routila comments:

We continued to make steady progress towards our targets in 2018, which is reflected in our Group adjusted EBITA margin that improved to 9.4 percent for the fourth quarter. In full year 2018, the adjusted EBITA margin increased by 1.2pps to 8.1 percent.

We ended the year on a high note with approximately 27 percent year-on-year order growth in Q4. In full year 2018, order intake grew 5.2 percent with comparable currencies. The fourth quarter order intake was boosted by two large orders: the order for 54 Automated Rail Mounted Gantry cranes to Khalifa Port in Abu Dhabi, which we announced in October, and an order for a single large process crane, which benefitted our order intake in Business Area Industrial Equipment.

Business Area Service also continued its solid performance. In Q4, order intake in Service increased by 5.3 percent and the agreement base value by 5.4 percent year-over-year. Our strategic goal of growing the service business has progressed according to our plans. The opportunity is significant and our learnings from 2018 reaffirm that we are on the right path. In the full year, we expect the growth to accelerate a notch in 2019 compared to 2018, while noting that it will still take several years for us to tap the full potential of this opportunity.

The integration of MHPS progressed well in 2018 and we see our integration plans bear fruit, the cumulative run rate cost synergies reaching EUR 113 million at year-end 2018. We achieved several important integration milestones during the year. First, we ramped down three further factories, the total number of discontinued manufacturing sites being now 11. Second, we now have more Industrial Equipment products with unified technology, which has enabled us to reduce the number of product platforms from 30 to 20. Third, we completed the implementation of shared sales management processes and the CRM system, to name a few examples.

Cumulatively EUR 79 million of the total EUR 140 million synergy savings target was already visible in our P&L in 2018, and we expect the figure to reach EUR 125 million in 2019. We now expect the related restructuring costs to total EUR 140 million, which is slightly more than our earlier estimate of EUR 130 million. Simultaneously, we have lowered our estimate for integration related CAPEX from EUR 60 million to EUR 30 million. Both changes relate to our decision to ramp down our port crane factory in Xiamen, China, which came with the MHPS acquisition.

Despite macroeconomic concerns shadowing the global economy, our own demand environment still looks healthy and stable. Business Area Port Solutions has started 2019 strongly by receiving an order for a complete automated container handling system for the greenfield Hadarom container terminal in Israel. Not only is the order the fourth largest ever received by Konecranes, the project is a major step in the execution of Port Solutions’ strategy. The order combines our own Terminal Operating System and our own Equipment Control System, our own automation technology, as well as our container handling equipment, allowing us to deliver a complete line of automated container cranes and software intelligence. The order will be booked in Q1 2019.

While the momentum in Port Solutions right now is good, decision making within certain customer sectors is slowing down. This is the case especially in the UK, where economic activity among our customers stagnated during 2018, amid Brexit uncertainty.

We are the only foreign vendor in our industry with local manufacturing in the UK. While our local presence can potentially be a relative benefit to us in the case of hard Brexit, we are confident that the scaling-down of our UK operations in 2018, as a part of our integration activities, was rightly timed. Any Brexit outcome that would negatively impact the UK economy is likely to have a negative impact also on Konecranes. However, we expect the impact on Konecranes as a whole to be limited, regardless of the Brexit outcome.

Outside the UK, the demand environment is still at a good level in many parts of Europe and North America. We expect faster sales growth and an improvement in the adjusted EBITA margin in 2019 compared to 2018, as stated in our financial guidance for the year. We continue to believe in our ability to achieve the post-integration targets announced in 2017: on average 5 percent CAGR for 2018-2020, as well as 11 percent adjusted EBITA margin for full year 2020.