Demag Cranes: Decrease in Business in the Third Quarter of Financial Year 2008/2009 due to Continuing Economic Crisis – Countermeasures Initiated

Düsseldorf,   04. August 2009

  • Economic Environment Continues To Be Weak – Different Effects in Segments
  • Order Volume: Group Order Intake Declines by 49.8 Percent in FY Q3; by 34.1 Percent in First Nine Months
  • Group Revenue 28.4 Percent down Year on Year in FY Q3 – Minus 10.1 Percent in First Nine Months
  • Operating Group EBIT Drops to EUR 5.3 Million in FY Q3; to EUR 55.2 Million in First Nine Months
  • Restructuring Programme Being Implemented – Outcome Reached in the Port Technology Segment Negotiations
  • Group on Firm Financial Footing – Net Debt Reduced to EUR 5.9 Million
  • Outlook: Forecast for Financial Year 2008/2009 – Group Revenue between EUR 1.0 Billion and EUR 1.1 Billion; Operating EBIT To Range between EUR 55.0 Million and EUR 65.0 Million

The third quarter of the financial year (ending as at 30 June 2009), was, as expected, marked like those before it by adverse impacts of the global economic and financial crisis. In particular, Group order intake dropped once again as customers worldwide continue to show little or no readiness to invest. The Management Board responded to the difficult situation and launched comprehensive restructuring measures with unanimous approval from the Supervisory Board in May of this year. Aloysius Rauen, CEO of Demag Cranes AG, emphasises: “We have seen a dramatic decline in business in the past few months. With our comprehensive restructuring programme, we have taken the necessary countermeasures to make the Group fit for the future on a lasting basis.”

Economic Environment Continues To Be Weak
The downturn in the world economy remained throughout the third quarter of financial year 2008/2009. While the property and financial crisis continues to make itself felt in countries like the USA and the UK, the export-driven Japanese, Chinese and German economies are suffering most from a collapse in foreign demand. Since the beginning of 2009, the mechanical engineering industry has recorded an unprecedented drop in orders. The order situation again worsened in the period between April and June of this year, with order intake in some sectors down on the previous year by 60 percent or more according to statistics from the industry association, VDMA.

Continuing Decline in Demand: Group Order Intake Falls by 49.8 Percent in FY Q3
The weak economic environment and the sharply increasing reluctance to invest once again had a negative impact on the order volume of the Demag Cranes Group in the third quarter of financial year 2008/2009. Order intake dropped by 49.8 percent to EUR 174.0 million as a result. In the first nine months, the decrease stood at 34.1 percent due to the stronger first quarter of the financial year. As at the balance-sheet date (30 June 2009), the order book at Group level shrank by 27.8 percent year on year to EUR 384.4 million.

In the Industrial Cranes segment, order intake saw a drop of 58.7 percent to EUR 75.8 million in the third quarter of the financial year. This is in step with the general weak market trend as our customers continue to show little or no readiness to invest or are postponing capital spending plans. Comparing the first three quarters of financial year 2008/2009 with the same period of the previous year, order intake fell by 39.1 percent to EUR 320.9 million. The weak performance compared with the previous year is nevertheless partly qualified by the fact that above-average numbers of orders for Process Cranes were generated in the second and also the third quarter of financial year 2007/2008. The order book came to EUR 247.5 million as at 30 June 2009.

In the Port Technology segment, the steep downturn in international cargo business continued. Port and terminal operators are still putting off their capital expenditure plans in consequence. These postponements affect all product lines in the Port Technology segment. As a result, order intake dropped 55.9 percent to EUR 33.3 million. Based on the first nine months of the financial year, order intake at EUR 107.9 million was 49.2 percent lower. The order book as at 30 June 2009 stood at EUR 83.9 million.

The Services segment is feeling the impact of the financial and economic crisis, though to a lesser extent than the other two segments. Demand for high-revenue, high-margin spare parts also falls when utilisation levels of customers’ cranes decline. In the Port Technology segment, order intake decreased by 26.0 percent to EUR 64.9 million in the third quarter of 2008/2009. In a year-on-year comparison for the first nine months, order intake fell by 11.0 percent to EUR 226.8 million. The order book as at 30 June 2009 amounted to EUR 53.0 million.

Group Revenue 28.4 Percent down Year on Year in FY Q3 – Minus 10.1 Percent in First Nine Months
Following on from the low order intake in the preceding quarters of the financial year, the Demag Cranes Group generated EUR 220.6 million in revenue in the third quarter, 28.4 percent less than in the same quarter of the previous year. Compared with the first nine months of the record financial year 2007/2008, revenue was down by 10.1 percent to EUR 791.8 million. Port Technology continues to be the segment most severely affected by the drop in revenue.

In the Industrial Cranes segment, revenue for the first to the third quarter of financial year 2008/2009 was on a par with the comparative period of the previous year. The main revenue drivers were the Process Crane and Standard Crane product lines.

Compared to the third quarter of financial year 2007/2008, revenue fell by 17.7 percent to EUR 119.5 million largely due to the decline in demand. Revenue for the first nine months in the Port Technology segment amounted to EUR 146.1 million, a decrease of 33.4 percent on the previous year’s comparative figure. The negative revenue trend observed and reported in the previous quarters also persisted through the third quarter of 2008/2009 with a decrease of 56.9 percent. In the nine-month reporting period, revenue came to EUR 225.2 million in the Services segment, a reduction of 7.0 percent on the previous year’s comparative figure. In the third quarter of the financial year, revenue was down by 19.0 percent to EUR 65.8 million.

Operating Group EBIT Drops to EUR 5.3 million in FY Q3; to EUR 55.2 Million in First Nine Months
The Demag Cranes Group generated operating EBIT of EUR 55.2 million in the first nine months of financial year 2008/2009. The decrease of EUR 47.6 million compared with the previous year’s figure is a result of the weak second quarter and, above all, the third quarter of the financial year, in which we felt the full impact of the financial and economic crisis. In consequence, the Demag Cranes Group was only able to generate operating EBIT of EUR 5.3 million in the third quarter of financial year 2008/2009.

A focus of attention in the normal course of business is on efficient utilisation of factory capacity. Faced with diminishing order intake and revenue, however, we are currently concentrating on optimising working capital and cash flow. We can, therefore, accept any resulting temporary underutilisation of production capacity with negative implications for EBIT. In May, we announced a restructuring programme that targets precisely this aspect and lowers the break-even point in each segment. The expenditure for the restructuring program amounted to EUR 45.8 million, which is not included in the operating EBIT. Thus, this figure remained within the range stated in May (“mid-range double-digit millions”).

In the segment analysis, operating EBIT in the Industrial Cranes segment decreased relative to the first nine months of financial year 2007/2008 by EUR 11.7 million to EUR 25.6 million. Operating EBIT in the third quarter of the financial year fell compared with the previous year from EUR 14.6 million to EUR 3.0 million. The shifts in the product mix result from the fact that we generated an above-average intake of orders in the previous financial year for lower-margin Process Cranes that are now being delivered to customers after an average production time of approximately twelve months. This and the underutilisation of our factories have reduced the EBIT margin. The Management Board has also taken countermeasures on the cost side: we have also announced and initiated restructuring measures in addition to agreeing to a short work-week until 31 August 2009.

Operating EBIT dropped sharply year on year in the Port Technology segment. The main causes of the EUR 23.7 million fall in earnings for the first nine months and the EUR 13.6 million decrease in the third quarter compared with the same period of financial year 2007/2008 are lower revenue and further decreases in production, resulting in lower utilisation of factory capacity. Both are consequences of the ongoing difficult situation relating to ports.

In the third quarter of the financial year especially, the Services segment sold fewer spare parts due to lower utilisation of customers’ cranes. As spare parts business generates disproportionately large EBIT margins, this led to a EUR 13.4 million decrease in operating EBIT for the first nine months. Third-quarter operating EBIT in financial year 2008/2009 fell by EUR 8.8 million compared with the same reporting period in 2007/2008.

Restructuring Programme Being Implemented – Outcome Reached in the Port Technology Segment Negotiations
In our press release of 18 May 2009, we announced that the Supervisory Board of Demag Cranes AG had unanimously approved a comprehensive restructuring programme that involves up to 750 job-cuts in the Group worldwide. By means of our restructuring programme, we aim to save up to EUR 60 million to ensure the long-term financial stability of the Group by lowering the break-even points significantly. This is to be achieved by substantially reducing fixed and variable costs in the Industrial Cranes and Port Technology segments. We have also adopted the objective of more closely dovetailing the entire organisation, for example, by uniting management of shared services such as IT, human resources and purchasing across the Group. With our restructuring programme, we aim, in particular, to counter the uncertain market situation by adding further flexibility to our production capacity. We have thus initiated a preventative measure against Management Board’s expectation that the crisis in our industry may continue for some time.

As announced in our press release published on 8 July 2009, negotiations in the Port Technology segment on the compensation agreement and redundancy scheme as part of the Group’s restructuring process were concluded at the beginning of July. Negotiations are continuing with the employee representatives in other parts of the Group.

Group on Firm Financial Footing – Net Debt Reduced to EUR 5.9 Million
Despite the fraught operating environment, we strengthened our balance sheet during the period under review. Through rigorous focus on cash and working capital management, we reduced net debt almost to zero and also generated a positive free cash flow in the third quarter of the financial year. Net debt decreased relative to 30 September 2008 by EUR 12.4 million to EUR 5.9 million as at 30 June 2009. Gearing – the ratio of net debt to shareholders’ equity – comes to 2.5 percent. The equity ratio (total equity to total assets) consequently stands at 27.6 percent.

Outlook: Forecast for Financial Year 2008/2009 – Group Revenue between EUR 1.0 Billion and EUR 1.1 Billion; Operating EBIT to Range between EUR 55.0 Million and EUR 65.0 Million
Considering the continuing unclear outlook for future trends in the world economy, it remains to be difficult to provide a forecast for the near future. That said, we do not, however, foresee any short-term improvement in the economic situation. We have already initiated restructuring measures to cushion the effects of the sharp drop in sales volumes and revenue as a result of the global financial and economic crisis. These measures aim to significantly lower break-even points on an EBIT basis and to prepare the Group should the crisis continue for some time. Compared with the outstanding financial year 2007/2008, we expect a significant reduction in order intake, falling revenue and lower earnings. On this basis, we anticipate that Group revenue for financial year 2008/2009 will be in the range of EUR 1.0 billion to EUR 1.1 billion and Group operating EBIT will be EUR 55.0 million to EUR 65.0 million.

About Demag Cranes AG
The Demag Cranes Group is one of the world's leading suppliers of industrial cranes and crane components, harbour cranes and terminal automation technology. Services, in particular maintenance and refurbishment services, are another key element of the Group’s business activities. The Group is divided into the business segments Industrial Cranes, Port Technology and Services and has strong and well-established Demag and Gottwald brands. Demag Cranes sees its core competence in the development and construction of technically sophisticated cranes and hoists as well as automated transport and logistics systems in ports and terminals, the provision of services for these products and the manufacture of high-quality components.

As a global supplier, Demag Cranes manufactures in 16 countries on five continents and operates a worldwide sales and service network that is present in over 60 countries through its subsidiaries, representative offices and a joint venture. In financial year 2007/2008, the Group, with its 6,093 employees, generated revenue of EUR 1,225.8 million. Since the end of June 2006, the Demag Cranes share (WKN: DCAG01) has been listed in the Prime Standard of the German Stock Exchange and is traded on various indices including the MDAX®.

Demag Cranes AG. We Can Handle It.


 

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