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CEO's review

January - July 2018, Half-Year Report | July 25, 2018

President and CEO Panu Routila comments:

We continued to make good progress in execution in the second quarter.

In Business Area Service, the year-on-year growth in order intake accelerated to 7.1 percent in comparable currencies. The growth was driven primarily by field services in EMEA and the Americas. We also made good progress in growing the value of our agreement base in Q2. On a comparable currency basis, the value increased by EUR 3.4 million from the previous quarter. I am very happy with the performance in Service so far and expect the trend to continue in the coming quarters.

When looking purely at the number of units in the agreement base, some of the progress has been offset by adjustments made in Q2, as we have harmonized our reporting practices. It is likely that we’ll see further adjustments also in the coming periods, as we continue the review of our current agreement base and the implementation of the oneKONECRANES IT infrastructure.

The solid performance is also evident in our Group adjusted EBITA margin, which improved to 7.7 percent in Q2. This is fully in line with our expectations and plans towards our post-integration EBITA-target of 11 percent for the full year 2020. Our expectation is that this journey will be a gradual evolution, rather than an avalanche of results in the immediate future.

Our run-rate synergies reached EUR 80 million in Q2. Having passed the halfway mark of our synergy savings program has further strengthened our confidence that we will reach the planned EBIT-level run-rate synergies of EUR 140 million at the end of 2019.

Business Area Industrial Equipment also had a good Q2. On a comparable currency basis, external orders grew organically by 2.4 percent in the second quarter compared to the year-ago period. Order intake growth for components accelerated in Q2, in addition to solid growth in order intake for standard cranes in EMEA. Apart from the Americas, order intake for process cranes fell year-on-year. The good order intake in Industrial Equipment was partly explained by the component price increases, which became effective from the beginning of Q3. Consequently, we expect the order intake for components to be affected in the second half, similarly to last year.

The reorganization of our manufacturing network led to limited temporary production delays in certain countries. The reasons for these delays, which now have been resolved, affected net sales and profitability in the second quarter in Business Area Industrial Equipment.

In Port Solutions, the year-on-year decline in order intake was primarily driven by Mobile Harbor Cranes due to the smaller number of orders available in the quarter. On the other hand, the value of Rubber Tyred Gantry Crane orders in Q2 more than doubled from the previous year. Overall the market sentiment for Business Area Port Solutions remains stable and at a good level.

From the net sales point of view, the first half of the year was strong in Port Solutions. The particularly good project execution for the finalized, as well as for the ongoing projects helped to boost Port Solution’s EBITA margin in Q2. However, some of this was specific to the first half of the year, and it is therefore unlikely that Port Solutions would be able to carry its current margin performance fully into the second half.

While the key macroeconomic indicators are signaling slowing growth in many economies, including Europe and the US, our own demand environment is still showing signs of improvement. This gives us confidence when entering the second half of the year. Consequently, we have today updated our demand outlook to reflect improved conditions in Europe and stabilizing conditions in APAC within the industrial customer segments. We have also reiterated our financial guidance for the full year 2018. Based on the current FX rates, we expect the headwind from foreign exchange fluctuations to ease in the second half. Assuming the FX rates would stay at their current level, the negative impact on our full year sales will be approximately 2.5 percent.