Demag Cranes: Economic Crisis Causes Downturn in Second Quarter of Financial Year 2008/2009 – Group on Sound Financial Footing

Düsseldorf,   05. May 2009

  • Economic Environment Deteriorates – Effect on Group Segments Varies
  • Order Situation: Group Order Intake Falls by 43.2 Percent in the Second Quarter, by 25.7 Percent in the First Half Year
  • Group Operating EBIT Shrinks in the Second Quarter by 43.3 Percent, in the First Half Year by 22.2 Percent
  • Group Funding Fully Covered Until June 2011 – Cash Flow in Second Quarter Finances Dividends
  • Outlook: Critical Trend Expected to Continue – Management Board's Appraisal May Result in Expenditure in the Mid-Range Double-Digit Millions

Having taken a further sharp turn for the worse, the economic crisis has, as expected, had a negative impact on the business performance of Demag Cranes AG in the second quarter of financial year 2008/2009. Group order intake in all markets was particularly affected by growing reluctance to make investments. With its sound financial footing, the Demag Cranes Group is equipped to deal with the situation. The higher dividend for the record financial year 2007/2008 was nearly covered by the second-quarter cash flow.

Economic Environment Deteriorates

The world economic trend remained negative in the first calendar quarter of 2009. The economies of North America and Western Europe are in their worst crisis since the Second World War. The ifo World Economic Climate Index further declined in the first quarter of 2009, with the indicator falling to a new record low. This fall entirely reflects the more unfavourable assessment of the current economic situation. The German economy is in its deepest recession since the foundation of the Federal Republic of Germany. Exports in particular have plunged in the wake of the global economic crisis, but capital expenditure is also down significantly.

Decline in Demand: Group Order Intake Drops by 43.2 Percent
The weak economic environment and the strong trend towards postponing investments had an adverse effect on the order situation of the Demag Cranes Group in the second quarter of financial year 2008/2009. At EUR 200.4 million, order intake was down at 43.2 percent. Compared to the strong first quarter, the figure decreased by 25.7 percent on a half-year basis. At Group level, the order book was down 12.6 percent at EUR 430.3 million year on year as at the balance-sheet date (31 March 2009).

At segment level, the impact of the deepening financial and economic crisis in the period under review was also felt more strongly than previously in the Industrial Cranes segment due to this segment's late-cycle bias. Order intake fell sharply by 52.0 percent to EUR 94.7 million in the second quarter as a result of customers postponing investments. The weak year-on-year performance is partly explained by the above-average number of orders for Process Cranes generated in the second and third quarters of financial year 2007/2008. On a half-yearly basis, order intake decreased by 28.7 percent. The order book came to EUR 291.1 million as at 31 March 2009.

In the Port Technology segment, as the economic environment for international ports remains as negative or has even worsened further still, port and terminal operators continue to postpone capital spending. The effect on large-scale projects is particularly severe. As a result, order intake was down by 51.9 percent in the second quarter and by 45.6 percent in the first half of financial year 2008/2009, order intake dropping by 32.7 percent to EUR 86.1 million.

In the Services segment, the order book dipped slightly on a half year basis from EUR 167.3 million to EUR 161.9 million. In the second quarter of financial year 2008/2009, orders worth EUR 71.5 million were secured. The order book stood at EUR 53.1 million at 31 March 2009, approximately three percent up on a year earlier.

Half-Year Group Revenue Remains Stable – Slight Year-on-Year Decline in Second Quarter
With revenue of EUR 571.2 million in the first six months of financial year 2008/2009, the Demag Cranes Group held first-half revenue on a par with the previous year despite a considerably more challenging operating environment. This outcome was driven by the Industrial Cranes segment. The second-quarter revenue figure was 4.8 percent down on financial year 2007/2008, however, dropping from EUR 281.6 million to EUR 268.2 million.

In the first six months of financial year 2008/2009, the Industrial Cranes segment generated revenue amounting to EUR 301.0 million, which represents an increase of 9.7 percent. This growth was driven mainly by the Process Cranes and Standard Cranes product lines. Compared with the second quarter of 2007/2008, revenue was boosted by 11.4 percent to EUR 147.5 million. Half-year revenue in the Port Technology segment amounted to EUR 110.8 million, 19.4 percent weaker than in the comparative period of the previous year. The negative revenue trend that was already visible in and reported for the first quarter continued through the second quarter of financial year 2008/2009 with a drop of 33.9 percent. Revenue in the Services segment remained on a par with the first half of the previous year at EUR 159.3 million in the first six months of financial year 2008/2009. Revenue of EUR 74.1 million was generated in this segment in the second quarter of financial year 2008/2009.

Group Operating EBIT Shrinks in the Second Quarter by 43.3 Percent, in the First Half Year by 22.2 Percent
The Demag Cranes Group generated an operating EBIT of EUR 49.8 million in the first half of financial year 2008/2009. The 22.2 percent decrease on the previous year is largely accounted for by the significantly weaker second quarter when operating EBIT amounted to EUR 19.4 million.

Turning to the segment figures, operating EBIT in the Industrial Cranes segment at EUR 22.7 million for the first six months remained constant compared with the same period of financial year 2007/2008. Compared to the prior-year figure, second-quarter operating EBIT decreased by 28.7 percent. This decrease is partly due to the fact that Process Cranes, which were ordered in the second and third quarters of financial year 2007/2008 and are now being fabricated and delivered on a continuous basis, have significantly narrower margins than the mass-market rope and chain hoists. Additionally, production has been cut in some areas. This measure has led to a lower level of capacity utilisation in the Group's factories, but has also improved working capital significantly compared to the first quarter of financial year 2008/2009. The Management Board has, however – as already reported at the beginning of March – taken steps to reduce costs: alongside a continued reduction in temporary manpower in this segment, a short work-week was imposed on 1 March 2009 for some areas up to 31 August 2009.

In the second quarter of financial year 2008/2009, operating EBIT in the Port Technology segment was down year on year by EUR 2.9 million. The EUR 10.1 million drop in earnings on the half-year basis and the EUR 8.8 million decrease compared with the second quarter of 2007/2008 were mainly due to lower revenue and further cuts in production that reduced capacity utilisation rates in the factory. Both are repercussions of the difficult market environment. As explained at the beginning of March, the Port Technology segment has likewise shed further temporary employees in an effort to cut costs. A short work-week also commenced on 1 March and will continue to 30 June 2009.

In the Services segment, fewer spare parts were sold in the second quarter especially due to the lower utilisation of cranes by customers. As the spare parts business generates particularly large EBIT margins, this resulted in a 21.3 percent decrease in operating EBIT on a half-year comparison. Compared with the first half of financial year 2007/2008, operating EBIT was down by 12.2 percent at EUR 33.3 million. At over 20 percent, the operating EBIT has remained constant in financial year 2008/2009.

Group on Sound Financial Footing – Cash Flow in Second Quarter Finances Dividends
The clear focus on cost as well as on cash and working capital management has continued to pay off for the Demag Cranes Group in the second quarter of financial year 2008/2009. The Group is benefiting from having established effective financial control processes that enable balance sheet-focused management of this kind. CFO Rainer Beaujean emphasises: "Even in the very hard second quarter of this current financial year, we have been able to generate a cash flow of approximately EUR 30 million to nearly cover the significantly increased dividend distribution of some EUR 30 million for financial year 2007/2008. Our net debt remains low and our equity ratio is above average at over 30 percent. The Group is on a sound footing."

Outlook: Critical Trend Expected to Continue – Additional Capacity Adjustments Necessary
In view of the still extremely uncertain general economic environment, the Management Board is refraining as before from issuing a full-year forecast for financial year 2008/2009. As negative reports on the economy continue to mount up, it does not currently appear possible to foresee the further course and the extent of the crisis. Research institutes and the German government are revising their growth forecasts downwards nearly on a monthly basis. For this reason, the Management Board still does not consider itself able to provide the capital market with reliable guidance figures for the financial year-end.

As has already been announced on several occasions, the Management Board will respond appropriately and responsibly to any worsening of the economic and financial crisis that may have associated with adverse consequences for the business development of the Demag Cranes Group. The marked drop in the order intake in the Industrial Cranes and Port Technology segments in the second quarter of 2008/2009 now necessitates capacity adjustments that cannot be effected through a short work-week alone. The Management Board is therefore currently appraising further action that may result in expenditure in the mid-range double-digit millions in the current financial year.

The Group’s funding is fully covered thanks to the revolving credit facility for EUR 325.0 million that runs until June 2011. As at 31 March 2009, drawings on the facility totalled EUR 168.8 million, with cash drawings accounting for EUR 105.0 million and drawings on the ancillary facility for guarantees for EUR 63.8 million. In addition, the Company is currently holding cash and cash equivalents amounting to EUR 79.7 million. Net debt therefore stands at EUR 30.5 million across the Group.

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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