Konecranes Plc: Half-year financial report January-June 2020
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.
Figures in brackets, unless otherwise stated, refer to the same period a year earlier.
SECOND QUARTER HIGHLIGHTS
– Order intake EUR 581.5 million (822.7), -29.3 percent (-28.9 percent on a comparable currency basis), orders declined in all Business Areas. Excluding MHE-Demag, order intake declined 32.1 percent
– Service annual agreement base value increased 11.2 percent (+12.5 percent in comparable currencies) to EUR 282.9 million (254.4). Service order intake was EUR 209.1 million (253.2), -17.4 percent (-16.7 percent on a comparable currency basis). Excluding MHE-Demag, the annual agreement base value increased 6.3 percent while order intake in Service declined 21.8 percent
– Order book EUR 1,904.5 million (1,967.8) at the end of June, -3.2 percent (-2.7 percent on a comparable currency basis). Excluding MHE-Demag, the order book declined 10.0 percent
– Sales EUR 704.7 million (794.0), -11.3 percent (-10.7 percent on a comparable currency basis), sales declined in all Business Areas. Excluding MHE-Demag, sales declined 14.7 percent
– Adjusted EBITA margin 8.2 percent (8.4) and adjusted EBITA EUR 57.5 million (67.0); successful demand-supply balancing, cost flexing as well as progress on strategic initiatives almost offset the sales driven decline in the Group’s adjusted EBITA
– Operating profit EUR 42.7 million (38.0), 6.1 percent of sales (4.8)
– Earnings per share (diluted) EUR 0.38 (0.25)
JANUARY-JUNE 2020 HIGHLIGHTS
– Order intake EUR 1,318.5 million (1,670.8), -21.1 percent (-21.0 percent on a comparable currency basis)
– Service order intake EUR 475.2 million (508.7), -6.6 percent (-6.6 percent on a comparable currency basis)
– Sales EUR 1,474.2 million (1,552.3), -5.0 percent (-4.8 percent on a comparable currency basis)
– Adjusted EBITA margin 5.3 percent (7.4) and adjusted EBITA EUR 78.6 million (115.4); the adjusted EBITA margin decreased in all three Business Areas
– Operating profit EUR 50.5 million (65.3), 3.4 percent of sales (4.2), restructuring costs totaling EUR 10.1 million (37.8)
– Earnings per share (diluted) EUR 0.53 (0.42)
– Free cash flow EUR 107.5 million (34.5)
– Net debt EUR 770.2 million (743.5) and gearing 62.8 percent (60.5)
The worldwide demand picture remains subject to significant volatility due to the COVID-19 pandemic. The current demand environment within the industrial customer segments is showing signs of improvement in Europe and North America compared to Q2; yet remaining below the year-end 2019 level. At the moment, the demand environment in Europe is overall less volatile compared to North America. While China’s demand conditions have improved from early 2020, demand environment in the rest of Asia-Pacific is weak.
Global container throughput has declined and many port operators are postponing 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.
President and CEO Rob Smith:
Konecranes reported strong Q2 results under extraordinary circumstances thanks to excellent teamwork and a performance focus throughout the company. Real-time demand-supply balancing and cost flexing, both enabled by our digital telemetry capabilities, as well as progressing our strategic initiatives delivered results in the quarter. With this performance, Konecranes is well positioned for the challenges to come as we continue to deal with the volatility and impact in our markets due to the COVID-19 virus.
The second quarter ended in a markedly different environment versus where it started. In April, many European countries and North America – our strongest regions – were in the midst of extensive physical restrictions and lockdowns due to the COVID-19 pandemic. Through the quarter the situation improved, as many countries were able to begin to ease their restrictions. In June, order intake in all our three business areas started to recover thanks to the improving overall market conditions, albeit with significant regional fluctuations.
Throughout the crisis, our focus has been on the safety of our employees and on supporting the mission-critical operations of our customers. Though lockdowns do not mean “no business”, our Q2 net sales were clearly impacted by the COVID-19 pandemic. Many of our customers limited access to their premises, affecting our ability to perform on-site service operations and deliver and install new equipment, resulting in an 11% net sales decrease versus a year ago, including MHE-Demag. Despite the market uncertainty we have not seen cancellations of significant orders in any of our Business Areas.
As the pandemic started to weigh on our business in late Q1 we rapidly responded, implementing actions to mitigate the impact on our business. Our TRUCONNECT crane utilization insights and digital telemetry have assisted us in real-time demand-supply balancing and in tailoring our service for our customers. Cost-flexing actions throughout our business have included temporary layoffs, reduced working hours, streamlined spending and permanent cost adjustments. The COVID-19 crisis recovery will not be straightforward, and continued challenges are likely such as reoccurring customer site access restrictions. We continue to follow the situation carefully, balancing our operations and aligning our cost base.
On top of mitigating the impact of the COVID-19 pandemic, we have progressed our strategic initiatives – Service revenue and profitability growth, Industrial Equipment profitability improvement as well as project management, lean operations and procurement excellence – introduced in connection with our Q1 report. These initiatives are delivering results, some already visible in the second quarter. We look forward to expanding on these topics in the coming quarters and plan on hosting a Konecranes strategy presentation in Q4.
This successful and fast response to the changes in the demand environment, as well as progress in our strategic initiatives, resulted in a Q2 adjusted EBITA margin of 8.2%. This is close to our profitability from a year ago, and a strong performance in the middle of the crisis. I would like to take this opportunity to thank all Konecranes employees for their impressive commitment and focus on safety and our customers. Thank you!
Our Service business profitability returned to a growth path with an improvement of 1.1pp in adjusted EBITA margin versus a year ago, rising to 17.2% – showing sequential improvement as well, up from 13.8% in Q1. The agreement base value also grew both year-on-year and sequentially despite the challenging market environment, proving our ability to tap the long-term growth opportunity even in the middle of a pandemic.
Many of our strategic initiatives target the improvement of our Industrial Equipment business, which was able to turn its profitability around this quarter with a 1.7% adjusted EBITA margin versus a margin of -4% in Q1. Net sales increased slightly on a sequential basis, exceeding our expectations due to the easing of physical access restrictions in China and some European countries. There is still a lot of work to be done in terms of fixing this underperforming business, but initial results are on a good way.
Port Solutions ended the quarter with a 6.4% adjusted EBITA margin – a clear improvement compared to Q1. Net sales declined both year-on-year and sequentially due to travel restrictions and site access limitations. Order intake also decreased year-on-year and sequentially. While market volatility and declining container volumes have made some port customers more cautious, we continue to consider the long-term positive prospects of the business largely unchanged.
Looking ahead, we will continue to drive efficiency improvements throughout the company. We have reached an agreement with employee representatives and unions on discontinuance of reach stacker production at our Montceau-les-Mines site in France. We are also identifying opportunities for business process efficiency improvement within our admin and group functions. The COVID-19 pandemic has accelerated the need to examine all facets of our business to ensure our cost base is aligned with the reduced and uncertain demand environment.
Despite the market volatility, we have resumed giving guidance for full-year 2020. Based on our current order book and the demand environment, we expect our net sales and adjusted EBITA margin to finish below 2019 levels. In line with our somewhat more positive market sentiment versus a quarter ago, we expect our Q3 net sales to improve sequentially. Given our ability to flex our operations, our adjusted EBITA margin is also expected to grow compared to Q2.
These eventful first six months as President and CEO at Konecranes have underscored my conviction that the company has an exciting future thanks to its exceptional qualities, potential and talented people. Konecranes will emerge from the pandemic the same way we entered it: as the leader of the global lifting industry.
Source: Konecranes Plc