CEO's review

Financial Statement | April 26, 2019

President and CEO Panu Routila comments:

 

We continued to book strong year-on-year order growth in Q1, making the quarter a good start for 2019. Our good order intake against weakening macro indicators demonstrates the late-cyclical nature of our industrial crane business and our strong offering in certain growing industry segments.

 

The growth was led by Business Area Port Solutions, which booked a significant order for the greenfield Hadarom container terminal in Israel. As we announced in February, the order consists of a complete line of automated container cranes and software intelligence, including our own terminal operating system and Equipment Control System. The Hadarom project is a landmark case for Konecranes and demonstrates well the capabilities of our Solutions business unit established last autumn.

 

On a comparable currency basis, order growth in Business Area Service was close to 4 percent in Q1. In addition, the annual value of the agreement base increased sequentially by approximately EUR 9 million, although a part of this was due to currency effect. In Business Area Industrial Equipment, the strong year-on-year order growth was driven by industrial cranes across all regions.

 

We made good progress towards our post-integration targets in the first quarter. Sales grew by double-digit percent, reflecting the order growth we saw last year. The sales growth was solid in all Business Areas.

 

Furthermore, our Group adjusted EBITA margin improved to 6.4 percent. The improvement was driven by Business Area Service, where the adjusted EBITA margin reached 15.7 percent, up by 3 percentage points from the year-ago period. The improvement in Service was largely due to operating leverage resulting from higher sales volume. We expect the sales growth in Service to slow down in the coming quarters, affecting the rate of the adjusted EBITA margin improvement.

 

Integration of MHPS continues to progress well and according to our plans. On a run-rate basis, we reached EUR 126 million of the total EUR 140 million synergy savings target in Q1. Cumulatively EUR 92 million of the amount was visible in our P&L at the quarter’s end. The program is nearing its end in Business Area Service and we are also close to our target for the overall procurement savings.

 

While we have completed many key synergy areas, a few important items remain in Business Area Industrial Equipment. First, our focus on product platform harmonization continues. Our long-term target is to reduce the number of platforms down to 11-14 from the current 20. In addition to cutting existing overlapping platforms, we will also launch completely new products. Consequently, we are planning to centralize the manufacturing of certain products to fewer sites.

 

Second, the optimization of our manufacturing operations is still ongoing in a couple of countries. While good progress has been made in Germany at our factory in Wetter, Konecranes is still in discussions with the employee representatives on the potential closing of the factory in Vernouillet, France. These processes continued to add temporary operational costs and weighed on both output and profitability in Industrial Equipment in Q1.

 

In addition, the adjusted EBITA margin in Industrial Equipment was affected by weaker mix within our process cranes business. Additionally, US custom tariffs had a negative impact in the quarter. While US custom tariffs and the changes in our supply network will likely continue to create additional costs, we expect the adjusted EBITA margin in Industrial Equipment to improve in full year 2019 compared to 2018.

 

Despite weakening global macro indicators, our overall demand environment remains on a healthy level. Our orderbook for 2019 is strong and we expect to reach the 5-7 percent guidance range for year-on-year sales growth in the full year. Furthermore, we continue to expect an improvement in the Group adjusted EBITA margin in 2019 compared to 2018.