KONECRANES PLC INTERIM REPORT JANUARY-SEPTEMBER 2020 October 28, 2020 8:30 am EET
Konecranes Plc: Interim report January-September 2020
Record-high adjusted EBITA-% powered by excellent commitment and execution
This release is a summary of Konecranes Plc’s interim report January-September 2020. The complete report is attached to this release in pdf format and is also available on Konecranes’ website at www.konecranes.com.
This report contains comparison to Konecranes’ historical figures which are Konecranes’ stand-alone financial information as reported for 2019. These do not include figures for MHE-Demag as the acquisition of MHE-Demag was completed in January 2020. The combined operations of Konecranes and MHE-Demag started on January 2, 2020.
To provide a basis for comparison, this Report contains under separate headings comments to the financial performance of MHE-Demag for the year 2020. Please note that starting from the fourth quarter 2020 any comments on the stand-alone MHE-Demag performance are based on estimates due to the proceeding integration work and legal entity consolidation.
Figures in brackets, unless otherwise stated, refer to the same period a year earlier.
THIRD QUARTER HIGHLIGHTS
- Order intake EUR 565.5 million (715.3), -20.9 percent (-18.8 percent on a comparable currency basis), orders declined in all Business Areas. Excluding MHE-Demag, order intake declined 24.6 percent
- Service annual agreement base value increased 5.9 percent (+10.9 percent in comparable currencies) to EUR 278.8 million (263.4). Service order intake was EUR 218.9 million (256.4), -14.6 percent (-11.1 percent on a comparable currency basis). Excluding MHE-Demag, the annual agreement base value increased 1.4 percent while order intake in Service declined 19.2 percent
- Order book EUR 1,742.8 million (1,923.2) at the end of September, -9.4 percent (-6.7 percent on a comparable currency basis). Excluding MHE-Demag, the order book declined 16.0 percent
- Sales EUR 767.9 million (841.3), -8.7 percent (-6.6 percent on a comparable currency basis), sales declined in all Business Areas. Excluding MHE-Demag, sales declined 12.9 percent
- Adjusted EBITA margin 10.4 percent (8.6) and adjusted EBITA EUR 80.1 million (72.4); continued successful demand-supply balancing, cost flexing, permanent cost adjustments and further progress on strategic initiatives drove the positive development
- Operating profit EUR 40.3 million (17.9), 5.2 percent of sales (2.1), restructuring costs totaling EUR 27.7 million (48.3)
- Earnings per share (diluted) EUR 0.33 (0.04)
JANUARY-SEPTEMBER 2020 HIGHLIGHTS
- Order intake EUR 1,884.0 million (2,386.0), -21.0 percent (-20.3 percent on a comparable currency basis)
- Service order intake EUR 694.1 million (765.1), -9.3 percent (-8.0 percent on a comparable currency basis)
- Sales EUR 2,242.1 million (2,393.6), -6.3 percent (-5.4 percent on a comparable currency basis)
- Adjusted EBITA margin 7.1 percent (7.8) and adjusted EBITA EUR 158.7 million (187.8); the adjusted EBITA margin improved in Service and decreased in Industrial Equipment and Port Solutions
- Operating profit EUR 90.8 million (83.2), 4.0 percent of sales (3.5), restructuring costs totaling EUR 37.8 million (86.0)
- Earnings per share (diluted) EUR 0.85 (0.46)
- Free cash flow EUR 188.9 million (115.7)
- Net debt EUR 742.7 million (674.2) and gearing 61.5 percent (54.8)
The worldwide demand picture remains subject to significant volatility due to the COVID-19 pandemic. In Europe and North America, the current demand environment within the industrial customer segments has started to show signs of improvement but continues to be volatile and remains below the year-end 2019 level. While China’s demand conditions have improved from early 2020, demand environment in the rest of Asia-Pacific is weak.
While global container throughput has started to recover, many port operators continue to postpone decision-making in the current environment. However, long-term prospects related to container handling remain good overall.
Based on the current order book and demand environment, Konecranes expects the full-year 2020 net sales to decrease from the previous year. Konecranes expects the full-year 2020 adjusted EBITA margin to decrease compared to the previous year.
||January - September
|Orders received, MEUR
|Order book at end of period, MEUR
|Sales total, MEUR
|Adjusted EBITDA, MEUR 1
|Adjusted EBITDA, % 1
|Adjusted EBITA, MEUR 2
|Adjusted EBITA, % 2
|Adjusted operating profit, MEUR 1
|Adjusted operating margin, % 1
|Operating profit, MEUR
|Operating margin, %
|Profit before taxes, MEUR
|Net profit for the period, MEUR
|Earnings per share, basic, EUR
|Earnings per share, diluted, EUR
|Interest-bearing net debt / Equity, %
|Net debt / Adjusted EBITDA, R12M 1
|Return on capital employed, %
|Adjusted return on capital employed, % 3
|Free cash flow, MEUR
|Average number of personnel during the period
1) Excluding adjustments, see also note 11 in the summary financial statements
2) Excluding adjustments and purchase price allocation amortization, see also note 11 in the summary financial statements
3) ROCE excluding adjustments, see also note 11 in the summary financial statements
President and CEO Rob Smith:
In the third quarter Konecranes reported a record-high quarterly adjusted EBITA margin of 10.4% despite the challenging market environment thanks to excellent employee commitment, strong teamwork and high performance. While we continue to expect market volatility and fluctuations due to the COVID-19 pandemic, our Q2 and Q3 performance and our ongoing strategic development give us the confidence and capability to overcome future challenges.
The third quarter started in a more positive environment compared to Q2, however it became evident during the quarter that the global COVID-19 pandemic is far from over. This was reflected in the overall market uncertainty. Despite the improving macroeconomic indicators, global demand has not returned to pre-pandemic levels, and our business is known for being rather late-cyclical. As a result, our Q3 order intake was approximately 19% lower in comparable currencies versus a year ago, including MHE-Demag.
Our sales improved 11% sequentially in comparable currencies and were down 6.6% versus a year ago. The sequential development reflected the generally improved access to customer sites compared to the second quarter. Despite the better overall situation compared to the widespread lockdowns in Q2, completing installments in the midst of ongoing travel restrictions and strict quarantines has been quite challenging, and I would like to give special thanks and recognition to the commitment of our employees as well as our customers to enabling safe and timely deliveries, installations and on-site service work.
We have continued to examine all facets of our business to ensure our cost base is competitive in this uncertain and reduced demand environment. Real-time demand-supply balancing assisted by our digital telemetry system, cost-flexing measures and permanent cost adjustments have continued in the third quarter. In parallel with our high-performance focus, we have successfully progressed our strategic agenda. Service revenue and profitability growth, Industrial Equipment profitability improvement, project management, lean operations, procurement excellence and business process efficiency improvement are key initiatives that underpin our strategy. Together, these initiatives and cost competitiveness led to a record-high adjusted EBITA margin of 10.4% in Q3 - a great achievement amid challenging circumstances.
Service order intake was impacted by the lower industrial activity due to the COVID-19, especially in South-East Asia and the Americas. However, sales declined only 2% year-on-year in comparable currencies, and we succeeded in growing the agreement base value almost 11%, including MHE-Demag. Service achieved a record-high adjusted EBITA margin of 18.7% - a clear sign that our robust service business model, digital service platform and focus on productivity are delivering exciting results.
In terms of execution, Industrial Equipment had an excellent quarter which culminated in an adjusted EBITA margin of 5.0%, with a sequential improvement of 3.3 percentage points. While we still have much work to do, we have made good progress with our process crane business turnaround some of which is visible in our Q3 profitability. To further improve our productivity, we decided to close production at our Glasgow site and started co-operation negotiations with the aim to centralize process crane-related personnel resources in Finland and in Germany.
In Port Solutions, order intake remained at a low level in Q3. Customer decision-making continues to be slow and planned investment projects are being postponed. Net sales decreased year-on-year but improved sequentially. Due to the global nature of the business, travel restrictions and quarantines impact Port Solutions the most of our three businesses. Nevertheless, the Q3 project execution was very good and Port Solutions closed the quarter with an adjusted EBITA margin of 7.1%.
Today we have reiterated our full-year 2020 guidance. Based on our current order book and the demand environment, we expect our net sales and adjusted EBITA margin to finish below 2019 levels. Based on our orderbook and the current circumstances, we expect our Q4 sales to grow from Q3. Given our performance record in the last two quarters, we expect to sustain or improve our adjusted EBITA margin in Q4 compared to Q3.
As discussed in connection with our Q2 report, we have been fine-tuning our strategy over the last quarters. To support growing customer demand for more comprehensive solutions, products and services, we decided to extend our ambitions beyond lifting into the broader material flow, and we identified the strategic initiatives mentioned earlier to strengthen our core competencies. We will continue our high-performance and strategic focus and expect our strategic initiatives to deliver further results in the coming quarters.
Before concluding, I would like to mention the merger with Cargotec that was announced on 1 October. The merger is well-aligned with our strategy and our growth ambitions. The merger remains subject to regulatory approvals and other conditions to closing, and the two companies will continue as independent and separate entities until the completion of the merger.
ANALYST AND PRESS BRIEFING
A live international telephone conference for analysts, investors and media will be held on October 28, 2020, at 10:30 a.m. Finnish time. The interim report will be presented by Konecranes’ President and CEO Rob Smith and CFO Teo Ottola.
Please see the press release dated October 14, 2020 for the conference call details.
Konecranes Plc plans to publish Financial Statement Release 2020 on February 4, 2021.
Vice President, Investor Relations
Vice President, Investor Relations,
tel. +358 (0) 20 427 2050
The Merger and the merger consideration securities have not been and will not be registered under the U.S. Securities Act, and may not be offered, sold or delivered within or into the United States, except pursuant to an applicable exemption of, or in a transaction not subject to, the U.S. Securities Act.
The information in this release is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction and it does not constitute an offer of or an invitation by or on behalf of, Konecranes, or any other person, to purchase any securities.
The information in this release contains forward-looking statements, which are information on Konecranes’ current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “estimate,” “plan,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Konecranes’ control that could cause Konecranes’ actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Konecranes’ present and future business strategies and the environment in which it will operate in the future.
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 2019, Group sales totaled EUR 3.33 billion. Including MHE-Demag, the Group has around 17,000 employees in 50 countries. Konecranes shares are listed on the Nasdaq Helsinki (symbol: KCR).