Konecranes Reports Satisfactory Order Intake But Lower Operating Profit in Second Quarter
07/26/2013 - As it reported its second quarter earnings results, Konecranes said demand is expected to be stable or slightly lower compared to the second quarter of 2013. However, due to the timing of large crane projects, the quarterly Equipment order intake may fluctuate.
(Figures in brackets, unless otherwise stated, refer to the same period a year earlier.)
Second Quarter Highlights
· Order intake € 503.0 million (553.7), -9.2%; Service +5.3% and Equipment -14.1%.
· Order book € 1,079.4 million (1,122.8) at end-June, 3.9% lower than a year ago, 0.4% lower than at end-March 2013.
· Sales € 519.9 million (562.5), -7.6%; Service -1.1% and Equipment -12.7%.
· Operating profit € 17.2 million (35.1), 3.3% of sales (6.2), was burdened by lower sales and additional project costs of approximately € 8 million.
· Earnings per share (diluted) € 0.19 (0.40).
· Net cash flow from operating activities € -32.3 million (16.6).
· Net debt € 269.6 million (275.2) and gearing 63.0% (64.3).
· € 30 million cost savings plan announced in a separate stock exchange release on July 24, 2013.
January-June Highlights
· Order intake € 1,085.7 million (1,088.3), -0.2%; Service +2.2% and Equipment -0.6%.
· Sales € 1,015.8 million (1,036.5), -2.0%; Service +0.0% and Equipment -3.8%.
· Operating profit excluding restructuring costs € 40.3 million (59.0), 4.0% of sales (5.7).
· Restructuring costs € 4.3 million (0.0).
· Operating profit including restructuring costs € 36.1 million (59.0), 3.5% of sales (5.7).
· Earnings per share (diluted) € 0.38 (0.64).
· Net cash flow from operating activities € -0.1 million (28.6).
Market Outlook
Demand is expected to be stable or slightly lower compared to the second quarter of 2013. However, due to the timing of large crane projects, the quarterly Equipment order intake may fluctuate.
Financial Guidance
Based on the order book and the near-term demand outlook, the year 2013 sales are expected to be stable or slightly higher than in 2012. We expect the 2013 operating profit, excluding restructuring costs, to be approximately on the same level as in 2012.
The clear second half 2013 earnings recovery incorporated in the financial guidance is based on the good order intake during the first half of 2013, product mix in the order book as well as the announced restructuring actions. The financial guidance includes an assumption of a continued satisfactory order intake in the third quarter of 2013.
Comments from President and CEO Pekka Lundmark:
“As already announced in June, our second quarter result was short of the previous year's corresponding period, and it did not meet our expectations. The low delivery volume did not come as a surprise since the weak order intake at the end of 2012 now came through in deliveries. The result, however, was further burdened by unexpected high realized and estimated costs of € 8 million in certain heavy industrial crane projects. We expect a clear earnings recovery towards the year-end on the basis of the order intake during the first half of 2013, product mix in the order book as well as the announced restructuring actions.
“The key positive element in the quarter was the all-time high order intake in our service business. Even though our order intake was reasonably good also in the equipment business, we cannot base our plans on the expectation that the world economy would provide a lot help to our growth. The tough pricing environment is also expected to continue. Our overall cost is too high for our volume outlook, and, therefore, we are now planning actions to lower our cost base by € 30 million by the end of 2014. In addition, we are preparing several initiatives in order to further rationalize our supply chain to push down our variable product cost. There is potential for savings in our non-personnel related spending as well, but, unfortunately, effects to personnel cannot be avoided.
“Lowering fixed cost and improving supply chain efficiency are necessary in our current situation, but they are by no means our only way to improve profitability. The development of technology increasing differentiation from the competition and improving pricing power is intensifying. A good example is the recently launched Automated Rubber Tired Gantry (ARTG) crane that makes the automation of existing container yards a viable alternative. Second example is our new family of services, TRUCONNECT®, that provides real-time usage and condition monitoring of customers' equipment. Another major initiative is to create a totally new product family mainly for emerging markets. What is typical for these products is that they offer a good set of basic features without ever compromising safety or quality. The third investment area is the renewal of our ways of working and fragmented information systems. This program is currently about halfway and it offers a substantial potential for the internal productivity improvement. What is common to the above three strategic initiatives is that they all require new skills. The development of competence of our personnel will therefore, be the key in all of them.”
