Konecranes Plc

Ladies and gentlemen, good morning, and welcome to the Fourth Quarter and Full Year 2018 Analyst and Press Conference of Konecranes. My name is Eero Tuulos, and I'm the Head of Investor Relations at Konecranes.

I'm here today with Panu Routila, our Chief, our CEO, President and CEO, and Panu will focus on the group level highlights. And Panu's presentation is then followed by Teo Ottola, our Chief Financial Officer, the true one, who will then focus and discuss our group, our business area performance in more detail.

But now, Panu, the floor is yours.

Thank you, Eero. 2018 was a year of execution for Konecranes.

We continued to make a steady progress towards our targets, which is reflected in our group adjusted EBITA margin that improved to 9.4% for the quarter. In the full year 2018, the adjusted EBITA margin increased to 8.1%, up by 1.2 percentage points from the previous year.

We ended the year on a high note, recording our highest ever quarterly order intake in Q4. With comparable currencies, order intake in Business Area Service increased by 4.7 percentage units, and the agreement base value by 5.1 percentage year-over-year.

Our strategic goal of growing the Service business has progressed well and according to our plans. The opportunity is significant, and 2018 showed that we are on the right path on this multiyear journey.

In the full year 2019, we expect the growth in Service to accelerate a notch compared to 2018. Both Business Area Industrial Equipment and Business Area Port Solutions saw double-digit growth in order growth in the quarter.

In Industrial Equipment, the growth was boosted by an order for a single large process crane; and in Port Solutions, by the order of 54 automated rail-mounted gantry cranes to Khalifa Port in Abu Dhabi, which we announced in October. I will discuss our financial guidance in more detail later in my presentation.

But to summarize here, our own demand environment still looks healthy and stable, and we expect 2019 to be another growth year for Konecranes. And last, the board is proposing the dividend to remain at €1.2 per share for 2018.

Let's then look at our key figures in more detail. Orders received in the fourth quarter totaled approximately €930 million, representing an increase of approximately 27 percentage.

Order intake increased in all business areas. On a comparable currency basis, group sales grew 0.5% year-over-year and in Q4, 3% in the full year.

The consolidated adjusted EBITA increased by 7% to €85.6 million, and the adjusted EBITA margin improved to 9.4%. Free cash flow in the period was approximately €76 million positive.

As usual, I will leave the business area discussion to our CFO, Teo Ottola, but a couple of points to highlight here. First, both Business Area Port Solutions and Business Area Industrial Equipment recording very strong year-on-year order growth in the fourth quarter.

On a comparable currency basis, order intake grew by approximately 57% in Port Solutions and by approximately 21% in Industrial Equipment. External orders in Industrial Equipment grew by approximately 18%.

As I said, both business areas benefited from large orders in the last quarter. Second, the adjusted EBITA margin in Industrial Equipment was 4.5% in the fourth quarter, which is 1% point lower compared to the year ago per year.

This is due to lower external sales volume in the quarter as certain ongoing site -- and as certain ongoing site evaluations and related negotiation deferred some deliveries and sales from Q4 to Q1. And third, Business Area Service reached an adjusted EBITA margin of 16.6% in the fourth quarter.

Activity in the world's manufacturing sector continued to grow in the fourth quarter, although the pace of expansion has slowed down clearly since the beginning of the year. In the U.S., the improvement in operating conditions in December was the weakest since 2016, although still clearly above the eurozone.

Correspondingly, the manufacturing capacity utilization rate declined both in the U.S. and in the eurozone during the fourth quarter.

We continue to see slower decision-making with certain customer sectors. This is the case especially in the U.K., where economic activity among our customers somewhat stagnated during 2018 amid Brexit uncertainty.

Global container throughput continues to run at record high levels after reaching a new all-time high in October. In 2018, global container throughput increased by approximately 4% year-over-year.

Business Area Port Solutions has started 2019 very strongly by receiving an order for a complete automated container handling system for the greenfield Hadarom container terminal in Israel. Not only is the order the fourth largest ever received by Konecranes, the project is a major step in the execution of Port Solutions' strategy.

The order combines our own terminal operating system and our own equipment control system, our own automation technology as well as our container handling equipment, allowing us to deliver a complete line of automated container cranes and software intelligence. The order will be booked in Q1 2019.

Despite, macroeconomic concerns shadowing the global economy, our own demand environment within the industrial customer segments in EMEA and the America is stable and continues at a good level. The demand environment remains stable also in APAC.

Global container throughput is on a healthy level, although the growth has somewhat decelerated. We are confident about that year ahead and expect faster sales growth compared to 2018.

We expect our sales in full year 2019 to increase 5% to 7% year-on-year. Furthermore, we expect an improvement in the adjusted EBITA margin in 2019 compared to 2018.

During the last few years, we have improved our group adjusted EBITA margin at around 1 percentage point per year or even slightly more. We expect this rate to continue in 2019.

While we expect synergy saving activities to create a further EUR46 million P&L benefit for us in the full year 2019, there are also some other items to be considered. First, we expect our sales mix in 2019 to be weaker compared to 2018, particularly in Business Area Port Solutions where we expect the negative impact to be approximately 1 percentage point.

Second, we achieved good results with the investments made in 2018 in the areas of R&D and some growth investments. These investments enabled us to advance some of our key R&D initiatives, and therefore we are planning to continue these and other growth initiatives also in 2019, maybe even further increasing these efforts.

Having said that, we continue to believe in our ability to achieve the post-integration targets announced in our Capital Markets Day in November, December 2017; on average, 5% CAGR for 2018 to 2020 as well as 11% adjusted EBITA margin for full year 2020. MHPS integration proceeded well and according to our plans in 2018.

Our integration focus shifted increasingly to Business Area Industrial Equipment, and we achieved several important integration milestones during the year. First, we now have more Industrial Equipment products with unified technology, which has enabled us to reduce the number of product platforms from 30 to 20.

Second, we completed the implementation of shared sales management processes and the CRM system. And third, we ramped down 3 further factories, the total number of discontinued manufacturing sites being now 11.

In addition, we completed the consolidation of financial shared services in Europe and made good progress with further procurement savings and reaching our targeted legal entity structure. In 2019, our integration actions will focus primarily on Industrial Equipment, where work remains still around the manufacturing and product platform initiatives.

We saw our integration bear fruit as the cumulative run rate cost synergies reached €113 million at year-end 2018. €79 million of the total €140 million synergy target was already visible in our figures by the end of 2018, and we expect the cumulative figure to reach €125 million by year-end 2019.

We now expect the related restructuring costs to total €140 million, which is slightly more than our original estimate of €130 million. Simultaneously, we have lowered our estimate for integration-related capital expenditures from €60 million to €30 million.

Both changes relate to our decision to ramp down our joint venture port crane factory in Xiamen, China, which came with the MHPS acquisition. Let's then continue with a few more words on the group's financial performance in Q4.

As already mentioned, our order intake in the fourth quarter was the highest ever in the history of Konecranes. Order intake grew in all business areas and in all 3 regions.

With comparable currencies, group sales increased 0.5% year-on-year. Business Area Service and Business Area Industrial Equipment recorded solid sales growth, while sales in Business Area Port Solutions decreased.

The value of the order book at the end of December totaled approximately €1.7 billion, which is approximately €180 million higher compared to the beginning of 2018. With comparable currencies, the value of the order book increased 11.8% from the year ago period.

The order book increased in all 3 business areas. Group adjusted EBITA increased to €85.6 million and the adjusted EBITA margin to 9.4%.

The improvement in the group adjusted EBITA was mainly attributable to synergy cost savings measures. On a year-on-year basis, the group-level gross margin improved.

On a comparable rolling 12-month basis, the split of group sales between the business areas and the 3 geographical regions has remained roughly unchanged from the previous quarter. Each business areas contribute approximately 1/3 of the group sales, which is slightly more than half of the sales coming from EMEA and 1/3 from Americas and the rest from APAC.

With that, I hand over to Teo, for a more detailed walk through the business areas. Now Teo, please.

Thank you, Panu. And let's start the business area review with Service.

So Service order intake in the fourth quarter was €249 million. That is roughly 5% higher than a year ago, actually 4.7% with comparable currencies.

Order intake increased in the Americas region as well as in APAC, whereas with the comparable currencies in EMEA, the situation was pretty flat in a year-on-year comparison. Orders grew both in field service and parts and actually with quite equal percentages amongst those 2 main blocks of businesses within Service.

Sales was €336 million. That is, again, an increase in comparable currencies of 4.4%.

Sales grew in all regions and also both in field service and parts. However so, parts sales outperformed that of field services in the fourth quarter, then meaning that we have a little bit better mix from the margin point of view than a year ago.

Service adjusted EBITA was €56 million; the EBITA margin, 16.6%. That is a very nice improvement both in euros as well as in percentage.

The percentage improvement of 1.4 percentage points in the fourth quarter is inline with the improvement of the whole 2018 comparing to the previous year. The improvement was due to the volume growth.

We had sales growth, also synergy cost savings and to a smaller extent, the improved mix as a result of the higher share of spare parts. Service order book, €214 million.

That is also an increase of 8% with comparable currencies. Sequentially, it has come down a little bit from the third quarter, but that is typically what happens towards the end of the year.

And then taking a look at the agreement base, again, with comparable currencies growth of 5.1% and an annual value of €244 million. So when we take a look at the Service performance as a whole, so the order intake growth, the agreement base growth as well as the profitability improvement, so things are getting along very well.

Industrial Equipment and Industrial Equipment order intake, €344 million. This is including the internal orders, and at least from the market sentiment point of view, maybe it's relevant to take a look at the external order intake as well.

That grew 17.7% with comparable currencies. The growth is very high, and at this time, it is driven mostly by process cranes because there is one exceptionally large order within the process cranes.

But also, standard cranes grew pretty nicely in the fourth quarter, whereas then the component order intake stayed approximately flat in a year-on-year comparison. Sales, EUR325 million.

That is an increase of 4%. Again now, this one is including the internal sales.

And when we take a look at the external one, so there we can see that we actually have a decline of 1.6% or approximately EUR6 million. And this decline in the external order -- sorry, in the external sales is then also visible on our adjusted EBITA.

So EBITA, EUR14.8 million; and the margin, 4.5%. So there is a decline both in euros as well as in margin and of course, the primary reason for that one is the lower volume in the external sales.

There are also other -- some other things like, for example, the currency headwind that still, from the transaction point of view, continues to be a headwind in the Industrial Equipment business in the fourth quarter. Order book, however, has risen quite nicely.

So EUR591 million, an improvement or increase of 12% year-on-year and the same -- basically the same percentage with comparable currencies. Then Port Solutions.

Port Solutions order intake, a very high number of almost EUR400 million. This is an increase of as much as 57% natural.

This is driven by the one particular very big order from Abu Dhabi that was earlier -- announced earlier. But even excluding that one, so actually, we had a good growth in several business units: mobile harbor cranes, lift trucks and port service, which means that actually the growth in the fourth quarter was quite widespread within the Port Solutions.

Sales, however, were EUR306 million. That is, again, down in a year-on-year comparison, not more than 1% with comparable currencies, but anyways, and this is mostly due to a timing of quicker [ph] deliveries towards the end of the year.

Adjusted EBITA, EUR25.3 million; margin, 8.3%, a very good improvement both in euros as well as in margin, particularly taking into consideration that the sales volume is slightly down. This is as a result of the gross margin improvement that has been supported by synergy cost savings and also a better mix than a year ago in the fourth quarter.

Also, like-for-like margins within the business units have been on a better level than they were a year ago. So from the -- a very good performance in the fourth quarter here.

Order book, 12%. This one also up 12% year-on-year, reaching EUR910.5 million at the end of '18.

And then finally, a couple of comments on the net working capital and cash flow before going into the Q&A. So net working capital, EUR410 million.

This is about 13% of sales. We are on a slightly better level than we were at the end of the third quarter, however, on a significantly higher level in net working capital than a year ago.

The main reason for the increase in net working capital is inventories, and the main reason behind the inventory is the timing of the projects within the Port Solutions, in particular. So we have a lot of work in progress as a result of having a very high order book at the moment.

Free cash flow, EUR76 million in the fourth quarter, reaching the full year level of EUR73 million. So the fourth quarter was a better quarter from the cash flow point of view than the previous one this year, of course, driven by the net working capital slight decrease as well as then a relatively good profitability.

And then finally, gearing and return on capital employed. So we have net debt almost unchanged from the last year's level, now at €545 million.

Also, the gearing is more or less unchanged. And the return on capital employed on an adjusted basis, 12.5% at the end of 2018.

And now without further comments from the presentation, let's go into the Q&A.

So let's start with questions from the audience, maybe here from the front row first. Tom?

Yes, do we have microphone?

Yes, this is Tomas Skogman from Carnegie. I wonder about, you said briefly something about these R&D investments continuing.

So I got a couple of questions around that. First of all, one year ago, you said there would be a temporary step-up in R&D and IT investments of €15 million.

So should we understand that these are now not disappearing? Or what was really the message?

Well, the message was that those costs that we announced then, those have actually disappeared, those one. But we have actually seen so good results with this, from these investments that we will continue.

We are also boosting actually the Service business some. But that also take some investments.

So if we build an EBIT bridge, well, I mean, we should take away the €15 million, but then we should add some other number? And is that going to be kind of sustainable?

Or is it again temporary for this year? Or just to get the numbers right in the model.

You want to take the numbers, Teo?

I think it would probably be a safer bet to have it as a permanent one, so not as a temporary for this year only. What the number will then be, so that is, of course, something that we will plan forward when the year, in a way, progresses.

Again, it is probably safe to say that we would be spending at least the same amount of money that we did, so this €15 million. So in a way, that would be, in a way, the bottom from the bridge point of view.

Okay. And then with this, you could, perhaps, open up a bit about what you achieved with these investments last year.

And then I was wondered, how large of the industrial cranes are now kind of similar products with Konecranes and Demag, and so you just have a red plate and the blue plate, basically? And how large of the Demag products are still kind of only Demag products?

And how large share of the Konecranes industrial cranes are only Konecranes products?

Okay. So first, taking from that, let's say, product prospective, we said here that we have taken down the number of platforms from 30 to 20.

And that has been already a significant work, and that is actually continuing kind of taking what we called corporate content inside the products, which was also actually a procurement achievement, and that has progressed pretty well. We have a couple of other products also ongoing.

And I will not be discussing here or disclosing the product launches, but they will come later this year.

But how large of the products are kind of only Demag? I mean, do you start to have that it's like Volkswagen and Audi and Skoda?

Or is it still...

We continue to believe in our multi-brand strategy, which has actually paid off in our history, and we continue to believe in that. We have a clear strategy for go, ongoing in the future with these multi-brands.

So Demag is actually extremely important piece of our brand portfolio as is Konecranes as well as some other brands on the side of these brands.

But the question was more about what's behind the brand. I mean, what, how many products are now, how large share of the industrial cranes sales are now kind of very different families, different components and so on?

And how far have you come with these kind of behind the scenes of the products?

I think the best way to distinct this is actually saying that we have taken the platform from 30 to 20, and this is still ongoing. There's still some to go there.

And this kind of distincts the item.

So let's take the next question there from Antti.

It's Antti from SEB. So the first one would be on service, and I think you're right in the report that while you see accelerating growth for this year, it might take a little bit longer time to untap the full potential of new service offerings.

So could you open up a little bit about this thinking? Have you seen something throughout '18 that makes you a little bit more cautious on the cross-selling or the digitalization?

I would not say that, that it takes longer than expected. What we have, since the beginning, said that this is a multiyear opportunity.

This is not happening in a 1 jump. This is happening throughout the years, and we continue on this.

This year, in 2019, we expect even a slight acceleration in the growth, and we continue to believe that this is actually a multiyear journey. So it will take time to capture these.

But nothing has changed. We continue to believe exactly the same amount of the opportunity that is there, and we have not changed the horizon either.

We have, since the beginning, been talking that this is actually a, it's not a jump. This is a clear path where we are.

And I think that we have executed pretty well along with the path that we already built 2.5 years ago.

So if you look at the agreement base and the cross-selling actions that you started last year, you are pretty satisfied where you are right now, and it has gone according to plan?

I'm satisfied, yes, yes.

Okay. The, secondly, on the Industrial Equipment, on the profitability for Q4 and the trend throughout the year.

Is there something else than just weakening external sales growth that would explain the kind of a weakish performance on Q4? One would assume that kind of the synergies would gradually hit more and more via cost side.

So could you open up that maybe a little bit?

There is nothing fundamental in addition to the volume. So volume is the biggest thing.

There are, however, a couple of things that are worth remembering. One of them is the currency development, especially when you take a look at the past year, not maybe so much Q4 but the earlier quarter.

So there, we have had a transaction impact that has been a negative, and it's mostly heating Industrial Equipment within our scope. So IE has sort of a software as a result of that one.

The other thing that is also a little bit impacting our Q4 or maybe, in particular, our Q4 EBITA bridge from the fourth quarter of 2017 is then that these, some of these synergy savings that we have been receiving, so they are actually causing these kind of ramp-up costs that we do not book as onetime items because they are, by nature, a normal activity. But when you do changes, so then having things done, for example, in a new place, in a new way, sometimes creates costs that then, in a way, also burden the operation.

And this is something that has been happening within the Industrial Equipment now in the fourth quarter but also, to some extent, in the earlier quarters.

All right, very clear. And maybe lastly, I know that you haven't really opened up the synergies on a divisional level but on these higher investment levels and what you achieved on the synergy side last year and what's expected for this year.

Is there any commentary on how would that affect the divisional EBIT levels or the profitabilities?

If we take a look -- if we compare this year to the next year, so then there is one difference, and it is that -- sorry, '18 to '19. So in '19, Industrial Equipment will be benefiting in relation more than in '18.

So that the activities that we have left or are pending are more Industrial Equipment-related than maybe the other business area-related. And this is particularly for the reason that was already discussed, to some extent, so that this product platform renewal/componentry is a long-term activity.

And that is, to a large extent, in the Industrial Equipment area.

And where are the higher investments visible, if you look at the divisional breakdown that you had last year and continues approach?

The higher investment, if we refer to the CapEx of EUR30 million, so that is largely an IT activity, not only largely an IT activity. And that -- the IT portion will be spread across all the businesses because we are building a common platform.

So it will be benefiting all the 3 BAs. Then when we have CapEx that is in relation to the supply operations, so that is then more in the Industrial Equipment area.

So there is a small bias on the Industrial Equipment area.

All right, thanks. That’s all for me, thanks.

Erkki?

Hi, it's Erkki from Inderes. Couple of questions from me as well.

First, on your guidance. How large chunk of your 2019 expected result improvement is based on the synergies alone?

Well, the -- what we are now discussing in connection to the Konecranes is that there are a couple of additional pieces of information. One of those is, obviously, the synergy savings.

And now we are estimating that we would be having, let's say, in the ballpark of EUR45 million additional impact as a result of the synergies year-on-year in '19 compared to '18. So that is the, let's say, difference between EUR125 million and EUR79 million that we have now at the end of '18.

The other part of the question of how big a portion is this of the EBITA improvement, so that is a very good question, and then we take the next question. Sorry for this.

I'll try to put it in other words. So where do the order, your current order book margins stand vis-à-vis what they were 30 years ago?

I mean, has there been any particular margin pressure in the orders -- in the order book and the orders you have recently received?

Yes. I think we said already earlier here that there is a slight mix disadvantage in the order book, in particular in the ports business area.

We said that, therefore, we expect that the ports business area EBITA margin will be about 1% unit lower this year than last year. I think we said also, along the year 2018, we were all the time warning that ports business area margin will not stay as high as it was during the year-end, and it still continued to be there now.

Now it will actually -- now it will be visible more. Otherwise, the margin content there is intact.

So this will mean that the Industrial Equipment and Services margins would be relatively flat.

Yes.

Yes. This is Tom from Carnegie, again.

I wonder about pricing. There's a lot of inflation or pressure we hear a lot of companies stating, and then now you have a lot of new, what you call, these platforms.

Typically, that leads to pretty good price increases, then you have new features on savings in the products. And are those savings part of the synergy savings?

In a way, yes. In a way, they are, yes.

Because as when we announced the €140 million, that, of course, was a big number of different projects within that. And of course, the product rationalization and product harmonization was one of the key items in the whole synergy list, and this part of this.

But do you, I mean, like after Q4 and Q1, basically, a year ago, you spoke about price increases. And now obviously, more inflation or pressure, and you have more and more new models coming out.

So what is happening on this front? I mean, we have seen many other companies doing similar things that add more features, but you can manufacture it more cheaply.

You can get a better price, even though it's a cheaper productivity.

We are looking for efficiency improvements in the different factories. Clearly, if we look at the pricing situation, we have said that we have, in average, been able to increase the prices with the cost inflation, though we have to say that the salary cost inflation, in particular, in Germany, was still higher than expected last year.

And then on recruitments, we know that there's a shortage of labor, especially, you said in Germany, where you probably would like to recruit loads of service technicians as part of your strategy to attack the large installed base of Demag cranes. So open up this.

I mean, this is very important for your kind of long term that you can find more technicians, especially in Germany. And now it's the wrong time in the cycle to recruit people.

Well, good companies actually get recruited also. So it's going pretty well.

We have just, actually, I added now. I approved a couple of weeks ago several new recruiting officers in different parts of the Company to enable that we actually get the good people.

And I'm quite happy to see, actually, as we get enthusiastic new service technicians, but also, other recruitments are going pretty well. I still have to come back to the, Erkki's question about when you said that the flat margins continues.

Of course, we do not continue with the flat margins in Industrial Equipment and Service business either. Just have to come back to that.

So of course, we expect those to improve as well as the total company improvement.

Any further questions from the audience? Or if not, let's move to the questions on the lines.

A quick clarification and then the main question. In your instruction, you mentioned that some sales have been deferred from Q4 to Q1.

Did you, could you quantify that for us and maybe give us some color?

I will not quantify it exactly, but you can see it in the sales number. So if you look at specifically some business areas like Industrial Equipment, one part of that can be mentioned to becoming from the certain site evaluations that have been ongoing in couple of sites.

That affected a little bit lowering the volumes and output of the factories and those site evaluations. In Germany, we have reached the labor union agreement, but there is another site evaluation that is ongoing at the moment.

Right. In terms of interpreting your outlook statements, your views that 2019 markets will be healthy and stable, do you think that Konecranes can grow orders through 2019?

Perhaps you got more confidence in Service, but overall, what's your view?

Well, we continue to believe in our market. We know that there are some macroeconomic clouds in the sky.

I just wish that we don't talk ourselves or the wall doesn't talk in, ourselves into the recession. So the macro economy outlook doesn't look that good, but on our numbers, I can't see that yet.

Right. And you've also guided for the margins to improve in 2019.

And when referencing a 2020 margin target, how should we expect the phasing of margins to develop? I know you indicated you expect a continuation of the progression you've seen thus far.

But just how do you see this weighted between 2019 and '20?

We have now decided that we do not really comment the phasing. And the guidance for '19 is now that is to improve, and then, of course, we continue to be believing in our 2020 target setting.

But the phasing between these 2 years, so we do not comment.

Magnus from UBS. A couple ones from me.

Could you give us a rough guidance of how big the process crane order was?

It can be found in the public, so we can say that it was US$54 million.

Got it. You also delivered ahead of your savings guidance target for the full year this quarter by some €9 million, if I already corrected.

So could you give us some help on explaining where that additional savings so and which division?

Yes. We have, we are now splitting the individual items as such, but I guess, that the good phase in overall in the program execution that we have been able to maintain throughout 2018, so we were able to continue that towards the end of the year as well.

And even if we have been commenting so far during '18 as well that some of the remaining issues are may be a bit more complex and time-consuming, so we have been able to progress with those a little bit in ahead of our own schedule. There is no magic in any of that.

It is just hard work and good planning that is behind all of it.

Okay. So there is no particular business unit that sort of exists out there...

No, there is no particular item or particular business area.

Perfect. And then I know there's a large one-off in Port Solutions also this quarter.

Can you explain what specifically relates to that one-off?

Sorry, could you repeat the question, one offer in?

In Port Solutions, I think, you had a relatively sizeable one in the Port Solutions in this quarter, what did that relate to?

You mean, in Q4, we booked the order of Abu Dhabi, which was significant. It was the second largest in the history of Konecranes.

That was announced in October, I think. And now we also told already earlier today that we are booking for the Q1 here, a significant, the fourth largest in the history of Konecranes, fourth largest order for the container terminal, fully automated container terminal in Hadarom, in Israel, including the equipment, but also including the software to run the port and container terminal.

Got it. I was more -- I was thinking more about sort of the one-off for the adjustments in Port Solutions.

You have 90.7 in the quarter there. What specific action does that relate to?

Okay, okay. Yes, this is in the adjustments.

So there's a restructuring cost that you are talking about, and that is correct. It is very high in the fourth quarter, and the size comes from the ports business.

That is correct. And it is in the relation to our factory in China, in Xiamen, that is being ramped down.

And there is a restructuring cost in relation to that one that is now visible in the adjustments.

And as you remember, we told also that we are lowering the cost -- the invested capital expenditures from EUR60 million to EUR30 million, and at the same time, we also meant that the restructuring costs overall will be creating EUR140 million.

So there was originally a plan to make this factory or increase the efficiency and productivity of that factory, and much of the CapEx was reserved for that one. And now there is a new plan.

And actually, the factory will be ramp down, and therefore, also, the CapEx amount required for the whole synergy program comes down, as a result of that one.

Okay. Good.

I guess, a follow-up on that one, and this would be my last one. Why did you make this change?

Because our operative and tactical and strategic reasons, it didn't actually prove out to be a factory that would be beneficial to be invested in.

Perfect, thank you so much.

My first question would be on the synergy targets and the 2020 margin target. So if I look at the bridge that you provide, so you expect to have -- to reach EUR125 million of P&L impact from the synergies by the end of 2019, which leaves only EUR50 million in the bridge for 2020 compared to almost EUR50 million to be delivered in 2019.

So that -- either that means that you expect to get the very significant pickup in sales or in volumes or pricing in 2020, if you kind of expect to continue in the similar type of a margin improvement pace in '19 as you did in '18. So just trying to understand what should drive this kind of jump towards the margin target and especially kind of 2020 beyond synergies.

Yes. I think we said in the Capital Markets Day in 2017, end of 2017, we said that, actually, the, to reach the 2020 guidance numbers, the synergy targets is not enough to get there, and we continue with that same idea.

There are other things also on top of the synergy savings that are coming this year or next year, in particular, next year, to improve the EBITA margin for us to reach those guided levels.

Could you specify what these other things are?

I would love to, but I will not.

Okay. Then in terms of the port margins, Port Solution margins, just wanted to make sure I understood it correctly.

So you were saying that the negative in mix, from the mix will be around 1 percentage on the margin. And then you said, I think, that the margins in the Port Solutions will be lower in 2018 than, 2019 compared to 2018.

So are you saying that the absolute margin will be lower? Or just one, were you referring to this 1 percentage point impact?

We are referring to this 1 percentage point as being the mix impact, not having or stating an opinion where the overall margin of the BA would be. But this mix impact will be based on the current order book about minus 1 percentage point in EBITA.

Okay. And I would imagine that the aim is to improve the Port Solution margin in '19 as well as all the other margins.

Next question. We have not given any guidance on the business area results ever.

But you were willing to comment that you will be improving the margins, or targeting to improve the margins in Services and Industrial Equipment. So I'm just asking if the target is to improve in Port Solutions as well.

You can do the math.

Fair enough. Okay.

And just final clarification on this IT investment then, on the, what Tom already asked. So we should basically assume that the kind of, this run rate of investments will continue for the, at least, foreseeable future and that assume that they will come down in 2020.

Safe it is to assume that it will continue in the foreseeable future, and now this €50 million that we had for '18 so will be at least €50 million for '19 as well.

It's Johan of Kepler Cheuvreux. Just doing the math a little bit, this benefit from, in the EBIT rates from the cost synergies [indiscernible] looked like €46 million, and that's basically with your top line guidance of 5% to 7% growth, implies the margin, an improvement of 1.5%.

And again, that we should not take away what you say about Port Solutions, the percentage points, potentially, which is around 30 bps on a group level, which leaves us with a little bit of a 1 percentage point margin improvement for 2019. Is this your target as well?

Or is it on the low end? Or are you expecting something more to come than adjust the synergy savings from the merger?

Okay. So we are not really giving additional information too much on the guidance, but maybe one comment that could be mentioned in connection to calculating the operating leverage in 2019.

So it is, of course, a good idea to remember that when you take a look at the growth, so there is also the inflation included. And the inflation is obviously, inflation correction in the customer prices is, of course, to offset the inflation in our costs.

So it doesn't necessarily create directly similar kind of leverage impact as genuine growth would be doing. I know that this is not the answer, actually, to your question, but maybe just more like a clarification into the EBIT basis when you and we do those.

Excellent. And then that brings me to my second question.

Columbus McKinnon talked about the pretty nice price hikes in Europe. Have you seen those as well for the Industrial Equipment part?

And can you quantify it and how it looks like going forward?

We don't disclose our commercial strategies here publicly. But as I said before, we have last year basically been increasing, been able to push forward the cost inflation in average.

Yes. This is Antti from Danske.

When I look into your synergy presentation and then I compared that with your earnings, I can see that your EBITA improved by €41 million for the year, and you said that your synergies amounted to €59 million. That means that you kept about 7% of the synergies.

Is this a number that we should think going forward that you will be able to keep, let's say, only 70% of the synergies?

Well, if we take a look at the 2018 first, a little bit, so there are, of course, explanations as to why the situation is as it is. We already discussed about the currencies, of course, for the full of 2018.

Both translation and transaction had the impact. Then we also were discussing about the €50 million investment in R&D and IT.

And then we have also been discussing a little bit about those ramp-up costs that we have not booked at as onetime items but have left as an operative cost, and this is explaining the gap between those ones. And of course, going forward, the, your question is about 2019, I understand, and there, of course, the, our capability of maintaining the synergies is depending on those topics, how we can manage those ones and if there are any new positive or negative ones and forward.

Also, one has to remember, when taking a look at this topic as well, is the volume development. So again, when we compare '17 and '18 as well with each other, so we have to remember to deduct the inflation from the prices because that is not real.

Real volume growth doesn't generate the leverage in the way that volume growth in thesis does.

Yes. And other observation I'm making when I look at your synergies slide is that in the Q3 report, you said, the synergies would be EUR50 million for 2018.

Now you indicate they were actually EUR59 million, so almost 20% more. Still, you don't go and upgrade the total target.

Are you sure that you have calculated the synergy potential correctly?

Well, I'm happy to have a good CFO who can calculate. But anyways, we have said that we will not be looking at the EUR140 million before the summer this year, once we know all the list of the synergy items.

So the EUR140 million, we are very confident on that.

So when we see looking at -- okay, that are you more than just confident? Is it possible that you underestimate it?

Next question, please.

It's Jon from Goldman Sachs. Most of my questions have been answered, and thank you for giving so much detail on the bridge.

That's very helpful. I just wanted to ask on FX.

Could you help us on what the FX impact on the bridge was in 2018 and what you expect that to be in 2019 on current rates?

Well, the -- we haven't actually given an exact bridge on transaction impact. And the simple reason for that one is it is very, very difficult to calculate even for ourselves.

But the translation impact, you can very easily calculate in the ballpark number yourself as well by taking a look at the change in the sales, so the FX change in the sales, and use the same percentage for the EBITA, so it doesn't deviate significantly. And we have -- but we have taken the heat as a result of the transaction impact for '18.

And now if we take a look at the situation for '19 and should the FX stay on the level where it is today, particularly the euro to dollar, so we are taking a look at a relatively new 12 situation between 2019 and 2018. So it would not necessarily benefiting us, but it would not be hurting us either.

Great. That's very clear.

And then just wanted to clarify. When you talk about Service growth stepping up a notch, I think, you said it like that, are you talking about orders?

Or are you simply talking about sales when you say that?

I'm basically talking both of them. But in particular, I'm talking about the order.

Okay, great, very good. Thank you very much.

I was just interested in how -- if you can share any views on how the competitive picture has developed since your takeover of Demag and the divestment of STAHL. Is it according to your expectations?

Or has competition intensified further? Or what do you basically see out there?

I guess, it's mainly related to Europe so far. But is there any other changes you see globally?

I haven't seen really, we haven't seen really big changes in the competitive environment as such.

I have a question concerning the delivery timing. Is this, do you remain confident that this is, perhaps, temporary issues?

And another one, do you see any sort of issues when it comes to the supply chain? Are there any delivery issues there because it seemed it's just a matter of timing?

The supply chain, we have been working very hard in our supply organization and procurement organization to make sure that, let's say, the components of RTGs that people are talking about in the world quite a lot that they do not affect us. And I think we have been very successful on this side.

We started it already earlier actually, and that probably is the reason why we have been able to compensate so well, actually, on this component shortage in the world. What was the question about the delivery?

Yes. Same to that, you said that a part of a, perhaps, lower sales was related to delivery timing.

Okay. Yes, yes.

That is related, as I said, that is related to certain sites, which are under a site evaluation. And in that kind of situation, there has been some local, let's say, output that has not been happening, and the factory has not worked with a full capacity.

And as I said, in Germany, this situation has now been cleared out, but there is another site evaluation ongoing.

Okay. But one could say that you remain confident in that this will be fixed during Q1.

I do not discuss about the timing. But in the term, it will be fixed, yes.

Okay. Great.

And just the final one for me. How should we think about the size of the Israel order that you will book during Q1?

It is the fourth largest in our history. We have agreed with the customer that we do not disclose the exact amount.

But you can basically calculate that with a average price of an equipment but also a significant part of software content.

Okay. But, yes, I understand, but is it, perhaps, in the region of 100 or below or above?

Can't disclose it now.

So do we have any questions still remaining in the audience? Erik?

Don't want to be a brag, but how large were the third and the fifth largest orders in the Company history?

Third was €110 million and the fifth was around €75 million. So you, you can make the good math there.

That was a good question, very good question. I like your thinking.

All right. That concludes today's conference.

So thank you very much, everybody, for participating. And see you again in April.

Thank you.

Thank you.