Overall Assessment of Business Performance and Target Attainment in the Financial Year
Financial year 2008/2009 was marked by the negative effects of the financial and economic crisis. This extremely difficult operating environment brought a slowdown in business for the Demag Cranes Group. In the tight economic situation, our customers became more and more reticent in awarding contracts and increasingly adopted a wait-and-see approach. Orders for products and services fell significantly. This was reflected in a 36.4 percent drop in order intake at Group level compared with the previous year. The well-filled order book from the record 2007/2008 financial year made up somewhat for the decrease in Group revenue. Revenue was down 14.5 percent year on year. Group operating EBIT fell from EUR 137.5 million in financial year 2007/2008 to EUR 67.6 million. This was mainly a consequence of our factories operating at lower capacity.
The Demag Cranes Group responded quickly to the crisis scenario and launched the necessary restructuring measures this May by unanimous resolution of the Supervisory Board. The main effect of these measures will be a lasting reduction in fixed costs and breakeven points to safeguard the Group’s future.
Following target-driven, constructive negotiations with employee representatives on the Works Council, we reached an outcome for the Port Technology segment as early as July 2009 with a compensation agreement and a redundancy scheme. Negotiations in Germany for the other segments concluded successfully on 23 October 2009. Further information is provided in the Report on Post-Balance Sheet Date Events.
With revenue totalling EUR 1,047.6 million in financial year 2008/2009, we attained our target of EUR 1.0 billion to EUR 1.1 billion set at the end of the third quarter. Our Group operating EBIT of EUR 67.6 million is even slightly above target (end-Q3 forecast: EUR 55.0 million to EUR 65.0 million).
In the Industrial Cranes segment, we benefited during the past year from our solid order book for Process and Standard Cranes carried over from the record 2007/2008 financial year. The strong order book was a notable factor in allowing us to cushion some of the fall in revenue compared with the previous year. The intake of new orders, on the other hand, was weak in line with the general trend in the mechanical engineering sector. This will primarily be seen on the revenue side in the next financial year. The financial and economic crisis significantly reduced the propensity of our customers to invest. Consequences of our factories operating below capacity were among the major negative impacts on segment earnings. We minimised this effect in the past year by cutting the number of temporary employees, using up accumulated flexitime balances and adopting a short work-week.
We likewise felt the marked reticence of our customers in relation to capital spending decisions in the Port Technology segment. This necessitated major capacity adjustments in the second quarter of financial year 2008/2009, which we administered in the Port Technology segment as elsewhere by reducing numbers of temporary employees, making use of flexitime accounts and introducing a short work-week. Running the factory significantly below capacity nonetheless had a negative effect on segment EBIT.
In the Services segment, the high-margin spare parts business was particularly hard hit by the effects of the financial and economic crisis. Despite the difficult operating environment, we were able to generate a 20.2 percent margin on operating EBIT in the Services segment in financial year 2008/2009, albeit with a degree of variability during the course of the year. In the third quarter of 2008/2009, for example, we attained an operating EBIT margin of 17.1 percent in the Services segment. The operating EBIT margin then went on to improve substantially in the fourth quarter to 21.5 percent. This variability underscores how the spare parts business is dependent on crane utilisation.
In times of financial crisis and potential credit squeezes, a sound balance sheet and a stable financing structure are more important than ever. The Demag Cranes Group is strong on both counts: by rigorously focusing on cash and working capital management, we have achieved low net debt and positive cash flow. Above and beyond this, we are on sound footing with our long-term finances secured through to 2011.
