Financial Statement Report | April 26, 2018
President and CEO Panu Routila comments:
“The first quarter was a good start to the year in several ways. To begin with, the integration of MHPS progresses well and according to our plan, which gives us additional confidence that we will reach our planned EBIT-level run rate synergies of EUR 140 million at the end of 2019. As of end-Q1, approximately EUR 63 million of the targeted run rate savings has been implemented. Our progress is clearly visible in our Group adjusted EBITA-margin, which improved 1.0 percentage point to 5.5 percent year-on-year.
USD has depreciated close to 15 percent against the euro compared to the year-ago period, and as a result, foreign exchange fluctuations had an adverse impact on our reported volumes in the period. With that as context, our underlying financial performance turned out in line with our expectations.
On a comparable currency basis, Business Area Service recorded solid growth in order intake, largely due to an increase in modernizations. Also, our service agreement base value grew 2.3 percent from the end of 2017, demonstrating progress with the execution of our service growth strategy. External orders fell on a comparable currency basis in both Business Area Industrial Equipment and Business Area Port Solutions. In Port Solutions order intake decreased largely due to the timing of projects in the quarter. In Industrial Equipment, component orders grew sequentially, continuing the positive trend from Q4. This is an encouraging signal also for industrial cranes when looking ahead further into the year.
Although the weakened US dollar pushed the reported Group sales 1.7 percent below the previous year, on a comparable currency basis, Group sales increased 3.9 percent. Comparable sales grew in all business areas and regions. The sales growth was mainly attributable to Business Area Port Solutions, which benefitted from a strong order backlog.
We were able to expand our adjusted EBITA margin, mainly due to the actions we have taken to lower fixed costs in all business areas, improve productivity in Service, and restructure manufacturing operations and consolidate country level support organizations in Industrial Equipment. In Port Solutions, the improvement was mainly driven by sales growth. Material and salary inflation were absorbed by customer price increases, and the gross margin improved in Service and Industrial Equipment.
The global economy still looks strong, especially in the US, where key macroeconomic indicators continued to improve. That said, Europe has started to show signs of slowing growth, as capacity constraints have begun to hinder general economic activity.
Our demand outlook reflects the improved conditions in the North American manufacturing industry and stabilizing prospects related to container handling overall, and we are confident about the quarters ahead. Therefore, we have today reiterated our guidance for the full year: the sales to be approximately on the same level or higher than in 2017 and the adjusted EBITA margin to improve in 2018.
Based on the current FX rates, we continue to expect a negative impact of approximately 3 percent on sales from foreign exchange fluctuations. Our expectation for incremental P&L level synergy savings in full year 2018 remains at EUR 40-50 million. Furthermore, we continue to expect EUR 12 million net interest savings related to the debt refinancing activities we did last year.
Finally, I am very pleased with the progress we have made recently on R&D. Our pipeline includes several projects that will significantly advance our technological leadership. Speeding up some of these projects, in addition to investments in selected key IT initiatives, is the reason we are investing EUR 15 million more in these areas in 2018, as we guided for last quarter.
With artificial intelligence, for instance, we are developing new applications that use AI to predict the renewal of service agreements. Another example of our recent R&D achievements is Work Zone, a suite of location-based services for Lift Trucks, that uses GPS-based geofencing to create virtual fences around real-world areas for improved safety.
Regarding the additional spend on IT, the projects include a new product lifecycle management tool, a new HR system, an updated eCommerce platform, as well as investments needed to meet the requirements of the European Union’s new general data protection regulation. We are making these investments to improve efficiency and to secure our competitiveness and long-term success. We have some truly exciting R&D projects in the pipeline, and I look forward to informing you more about those over the coming 12 months.”