Konecranes sales and order growth overshadows disappointing profits22 November 2011 by Kevin Walsh
Konecranes posted third quarter results showing a 24% drop in operating profits, despite a healthy 14.6% increase in sales and a 53% increase in Konecranes’ order book year on year, as expansion costs bit at the Finnish multinational’s service division.
While operating profits before interest and taxes were 34.8% higher for the equipment sales arm of the business over the first three quarters of 2011, Konecranes’ service arm experienced a drop in operating profits of 13.8% over the same period.
Konecranes said that the cost of expansion of the service arm of the business, combined with slower than expected growth in the number of deliveries has had a knock-on effect on fixed cost absorption in the expanded service network.
In addition the number of customers requesting modernisation of their existing existing crane fleets had fallen both year on year and since the second quarter of 2011, with execution bottlenecks in a number of projects also affecting profits.
Commenting on the results, Konecranes president and CEO Pekka Lundmark said, “I am obviously not satisfied with our third quarter as a whole, and the main concern is lower-than-planned operating profit in service. We have invested a lot in growth: system and technology development, service network expansion and training in order to be able to deliver higher value services and higher volumes.
“These are all good investments, but now when the realised growth is lagging behind expectations we are reconsidering certain parts of our plan. We will initiate actions in the fourth quarter to lower fixed costs in the service business, especially in Europe.”
Order intake for both the service and equipment sides of the business were up by 3.5% and 31.7% respectively over the third quarter; total orders for Q3 increased 22.8% on last year, leaving an order book at the end of the period 6% bigger than the previous quarter. Sales for the quarter were up 14.6% in total, with service up 13.2% and equipment up 9.9%. Total sales for the quarter were €450.9m.
Order growth was experienced across all geographic regions of Konecranes’ operations during the first three quarters of 2011, with orders for the equipment side particularly high in the Americas, followed by the EMEA.
Roughly 45% of these new orders were for industrial cranes, 25% for components and 30% for lift trucks, nuclear and port cranes, with the first two categories seeing increasing order intake while, for lift trucks, fell compared to Q3 2010 figures.
Konecranes said that profitability for the equipment business could have been better, but was held back by spending on IT and business development costs related to new products.
The company has continued to grow and has increased the average number of staff employed across the business for the first three quarters of 2011 to 10,834 from 9,677 last year.
Lundmark added: “On balance, there is a lot of positive news in the quarter as well. Our total order intake, €459m, is 23% higher than a year ago. I am satisfied with the margin level in these orders. In general, our equipment business is progressing according to the plan and the strong order book in that business gives us visibility and some time to adjust should the recent negative trend in the world economy continue.”
Konecranes predicts that the overall operating profit for 2011, excluding possible restructuring costs, will be comparable to 2010 figures, while for the service arm profits will be lower than this. However total sales at Konecranes and operating profits for the equipment business are forecast to outperform last year’s results.