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Konecranes plans further cost-cutting programme

Konecranes plans further cost-cutting programme
Teo Ottola said that radical cost cuts are being planned

Finnish container handling equipment manufacturer Konecranes has told investors that it is preparing a major structural cost-cutting programme but was not ready to announce the details yet.

The company is aiming to increase its equipment business profit margin from 4% to 8% while the service business aims for a margin of 12-13%.

To achieve this, the company is currently pursuing a €30m (US$32m) cost-cutting programme, mainly in the equipment division, which Acting CEO Teo Ottola said is “on track”. The programme was first announced in December 2014 and is scheduled to be completed by the first quarter of 2016.

As a result, Konecranes has reduced its staff by around 300 this year, mainly in the equipment business. On the other hand, 200 people have been hired, mainly in the service sector which which represents 44% of the business to equipment’s 56%.

On top of this €30m (US$32m), Ottola assured investors, while announcing his company’s third quarter results, that Konecranes is always looking for short-term cost-savings and is preparing a long-term structural cost-cutting plan.

Referring to this plan, one potential investor from Danske Bank, said: “I am puzzled that you are waiting so long with your cost-cutting. What kind of impact should we expect to see from these structural cost-cutting preparations which you are doing at the moment? In millions of euros how big could this cost-cutting be?”

Ottola replied that the company was not ready to announce the nature or the magnitude of the new programme. “These changes can not be planned overnight,” he said.

He added that the plans were not waiting on or dependent on the merger with Terex being approved by regulators. He expects this merger to be completed by the second quarter of 2016.

Excluding restructuring costs, the operating profit of Konecranes equipment business has fallen from €26.1m (US$29.6m) in the first three quarters of 2014 to €18.3m (US$20.8m) in the same period of 2015. On the other hand, sales grew by 4% year-on-year.

Of the company’s four equipment sections however, port cranes was the only one whose orders rose in the third quarter of 2015.

“Container throughput growth is now negative,” Ottola said, “The sales funnel is now OK but if throughput growth continues to be negative, it will impact on the amount of opportunities Konecranes will have to gain orders.”

The company also announced that it has had to pay a lot of one-off sums recently, including €8.5m (US$9.7m) in costs related to the proposed merger with Terex, which are mostly advisory fees.

It also lost €17m (US$19m) when identity theft was used to trick one of its foreign subsidiaries into making unwarranted payments. The company has crime insurance in which the sum insured is €10m (US$11.4m) but, as this has not yet been paid, it could not be included in the quarterly results.