Konecranes to strengthen its market position in Southeast Asia by buying full ownership of MHE-Demag

Konecranes has signed an agreement to acquire the 50% stake in its MHE-Demag JV held by partner Jebsen & Jessen for approximately EUR 147 million. The acquisition will significantly improve Konecranes’ market position in the fast-growing Southeast Asian markets, creating further opportunities for service sales and simplifying the distribution channel for industrial cranes and components.

The transaction will allow Konecranes to fully consolidate MHE-Demag going forward. Konecranes estimates that the transaction will add approximately EUR 150-180 million in annual sales and approximately EUR 25-30 million of annual EBITA to the Group by 2022, including the targeted synergies.

Konecranes is currently reporting MHE-Demag as an associated company. In 2018, the net result in the Group attributable to MHE-Demag was approximately EUR 5 million.

“With the MHPS acquisition now behind us, Konecranes is ready to take the next steps on its growth path. This acquisition underlines our intent to pursue profitable growth, and meaningfully expands our footprint in a strategically important region with several fast-growing markets. The acquisition will also bring greater balance to Konecranes’ regional sales structure,” said Teo Ottola, Interim CEO and CFO of Konecranes.

Transaction terms
Jebsen & Jessen will receive approximately EUR 147 million in cash and deferred payments upon the expected closing of the deal on January 2, 2020. MHE-Demag is expected to have a minor net cash position at closing. The acquisition is expected to close without the need for regulatory approvals.

Overview of MHE-Demag
MHE-Demag is a leading supplier of industrial cranes and services in Southeast Asia under the MHE and Demag brands, engineering, manufacturing and maintaining a comprehensive range of industrial cranes and hoists. Its customized solutions serve a wide range of industries and customers from general manufacturing to aerospace. MHE-Demag also provides warehousing equipment such as lift trucks and dock levelers, aerial work platforms, building maintenance units and compact construction equipment, as well as automated car parking systems.

Service represents approximately 50% of MHE-Demag’s annual net sales, with cranes and components at approximately 35% and other industrial products at approximately 15%. In 2018, MHE-Demag’s net sales were approximately SGD 285 million (EUR 179 million) and EBITA approximately SGD 20 million (EUR 13 million). Konecranes is the main supplier to MHE-Demag, selling crane components under the Demag brand name.

MHE-Demag has approximately 1,800 employees, including some 700 service engineers. MHE-Demag operates 11 factories and more than 70 service locations throughout Southeast Asia and is headquartered in Singapore.

MHE-Demag runs own operations in 8 countries: Australia, Indonesia, Malaysia, Singapore, the Philippines, Taiwan, Thailand and Vietnam. In addition, MHE-Demag has distribution through resellers in several countries including Brunei, Cambodia, Laos, Mongolia, Myanmar, Papua New Guinea and Timor-Leste.

MHE-Demag was formed in 1986 as a JV between Demag and Jebsen & Jessen and to date has built over 26,000 industrial cranes, more than 20,000 dock levelers for warehouses, more than 2,000 building maintenance systems and more than 200 car parks with more than 6,000 bays.

Strategic rationale
With the acquisition, Konecranes will:

• Add scale and scope to its global service organization with an enlarged service footprint and the addition of some 700 service engineers;
• Achieve synergies and simplify the distribution channel for its industrial cranes in Southeast Asia;
• Increase its presence and market coverage in fast-growing Southeast Asia by growing sales in Asia Pacific by approximately 30%; after the acquisition, Region APAC will represent approximately 20% of Group sales.

Synergies
Konecranes expects the acquisition to create approximately EUR 10 million of annual synergies at the EBITA level by 2022, including both revenue and cost synergies. One-time costs generated by the integration of MHE-Demag are estimated to total EUR 6 million.

Today, Konecranes operates wholly owned subsidiaries in seven of the eight countries, where MHE-Demag has own operations. The exception is Taiwan, where Konecranes operates through a reselling partner.

The acquisition is expected to be approximately EPS neutral at inception but clearly EPS accretive post synergy realization.

Financing
Konecranes is financially well-equipped to complete the transaction and to deliver its benefits. During the fourth quarter, Konecranes has drawn EUR 140 million long-term funding from financial institutions financing the cash consideration.

 

KONECRANES PLC

Teo Ottola
Interim CEO and CFO

Investor enquires:
Eero Tuulos
Vice President, Investor Relations, tel. +358 20 427 2050
Konecranes is a world-leading group of Lifting Businesses™, serving a broad range of customers, including manufacturing and process industries, shipyards, ports and terminals. Konecranes provides productivity enhancing lifting solutions as well as services for lifting equipment of all makes. In 2018, Group sales totaled EUR 3.16 billion. The Group has 16,100 employees in 50 countries. Konecranes shares are listed on the Nasdaq Helsinki (symbol: KCR).

DISTRIBUTION
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www.konecranes.com

FORWARD LOOKING STATEMENTS

This stock exchange release contains forward-looking statements regarding future events, including statements regarding Konecranes, Jebsen & Jessen or MHE-Demag, the Acquisition described in this stock exchange release and the expected benefits of such transaction and future financial performance of the combined businesses of Konecranes and MHE-Demag based on current expectations. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. When included in this document, the words “may”, “expects”, “intends”, “anticipates”, “plans”, “wants”, “will”, “projects”, “estimates” and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statement is not forward-looking. Konecranes has based these forward-looking statements on current expectations and projections about future events. These statements are not guarantees of future performance.

Because forward-looking statements involve risks and uncertainties, actual results could differ materially. Such risks and uncertainties, many of which are beyond the control of Konecranes, include, among others: Konecranes’ ability to close the Acquisition without regulatory approvals; the total consideration to be paid by Konecranes to Jebsen & Jessen in connection with the Acquisition; the possibility that the length of time required to complete the Acquisition will be longer than anticipated; the ability of Konecranes and Jebsen & Jessen to enter into other agreements in connection with the Acquisition, including the SHA; the achievement of the expected synergies and  benefits of the Acquisition; risks associated with the integration of the MHE-Demag business into Konecranes; the ability of Konecranes and Jebsen & Jessen to terminate the Stock and Asset Purchase Agreement under certain circumstances; Konecranes’ financial position after the Acquisition; and other factors, risks and uncertainties that are more specifically set forth in Konecranes’ annual and interim reports. Konecranes disclaims any obligation to update the forward-looking statements contained herein.