Financial Statement Q2 | July 25, 2019
President and CEO Panu Routila comments:
The second quarter marked a key milestone in the integration of Terex MHPS. We reached the target of EUR 140 million in run-rate cost synergies, six months ahead of our original plan. The related restructuring costs landed at EUR 139 million, in line with our guidance, and the restructuring-related CAPEX at EUR 15 million, which is clearly below our earlier estimate of EUR 30 million. This completes the synergy savings program, which started at the beginning of 2017.
While the original synergy savings program has come to an end, we continue to drive further efficiency improvements. Some of these activities are already ongoing, having so far created approximately EUR 17 million in restructuring costs. We expect the annual savings to equal the related restructuring costs, and we expect these to benefit our P&L from Q4 onwards, with a full bottom-line impact by mid-2021.
The majority of the above-mentioned ongoing efficiency improvements relate to our factories in Wetter and Vernouillet. We made good progress at both sites in Q2: In Vernouillet, we have now reached an agreement with local employee representatives on the closing of the factory in 2020. In Wetter, we expect a significant part of the planned headcount reductions to take place during the second half of 2019.
Turning to the result, Group adjusted EBITA increased to EUR 67 million in Q2, up by 12 percent year-on-year. The Group adjusted EBITA margin improved year-on-year by 0.7 pp to 8.4 percent, mainly due to Business Area Service, where the adjusted EBITA margin increased 1.6 pp to 16.1 percent. We have improved the Group’s adjusted profitability consistently throughout the integration period and expect the margin expansion to continue going forward. In full-year 2019 the rate of improvement will be slightly lower than in the past couple of years, primarily due to two reasons.
First, despite having reached the agreements in both Wetter and Vernouillet, the ongoing reductions are likely to impact our output and profitability until the end of 2019. This will weigh on our sales and profitability mainly in Business Area Industrial Equipment, but also in Business Area Service.
Second, the global macroeconomic environment showed signs of deterioration as the second quarter progressed. The Group’s comparable order growth was approximately 7 percent year-on-year in Q2, driven by Business Area Port Solutions. On the industrial side, however, weakening PMIs and continued uncertainty in the global economy began to impact our customers’ investment appetite, especially in EMEA – and Germany in particular. This will affect both our operating leverage as well as mix, primarily within Business Area Industrial Equipment.
In Industrial Equipment, total external orders declined year-on-year in Q2, mainly due to lower order intake for components globally. This will impact our mix in the coming quarters. In addition, order intake for standard cranes declined primarily in EMEA, where order intake was particularly low in Germany. However, order intake for process cranes continued strong in the second quarter. Furthermore, we continued to record solid order growth for standard cranes in the Americas.
In Business Area Service, on a comparable currency basis, the annual value of the agreement base grew in Q2 by nearly 5 percent year-on-year, showing the success of our strategy execution. However, the overall order intake declined year-on-year as orders for modernization projects fell across all regions, particularly in EMEA. Order intake excluding modernizations grew both in the Americas and APAC but was approximately flat in EMEA.
We expect the order intake of Service to return to a growth path in Q3, but the lower level of modernization projects will make it challenging to accelerate our comparable currency order growth rate from 2018. The full-year sales growth with comparable currencies is expected to outpace the growth rate recorded last year. Moreover, the long-term growth opportunity in Service following the acquisition of MHPS has not changed.
In Business Area Port Solutions, the prospects for orders remain stable, despite hesitation in short-term decision making among some of our customers. In Q2, the order intake growth in Port Solutions was over 30 percent year-over-year, thanks to good order intake across several product categories.
We remain committed to reaching our post integration target of 11 percent Group adjusted EBITA margin. However, given that the macroeconomic uncertainty is likely to be a headwind to us also in the coming quarters, it can become a challenge to reach the target already in 2020. While the margin performance of Service and Port Solutions has been well in line with our expectations, we are behind our targeted profitability in Industrial Equipment. Furthermore, weakening mix as a result of lower relative share of components will weigh on the adjusted EBITA margin of Industrial Equipment next year. Consequently, we will continue to drive further efficiency improvements in Industrial Equipment and remain confident in our ability to further improve the profitability of each Business Area.