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ANNUAL REVIEW 2020
Strong performance in a year ofunprecedented adversity and change2020 will be forever associated with the COVID-19 pandemic. On its own,the rapid global spread of the virus and a company’s reaction would sufficeas the main theme for the year, but for Konecranes, there was even morechange in store: the announced merger with Cargotec to create a globalleader in sustainable material flow.We took quick, decisive steps in early 2020 to mitigate the impact ofCOVID-19, tapping our digital insights to chart and handle volatile demandin real time, and adjusting our business to keep costs in balance. Inparallel, we sharpened our strategy, identifying and executing strategicinitiatives to improve our operations. Together, these actions underpinnedour impressive financial performance. We also took big strides with oursustainability agenda in 2020.On October 1, we announced plans to merge with Cargotec, furthersupporting our strategy and growth ambitions. In December shareholdersof both companies gave their support for the plan, a major step towardsthe expected completion of the merger on January 1, 2022, given allconditions and merger control approvals for completion are fulfilled. Untilthen, both companies will operate fully separately and independently.The battle against COVID-19 continues, demanding vigilance on bothdemand and costs, but we take heart from our response so far – and ourresilience. After an extraordinary year we will tackle 2021 with both cautionand confidence, knowing that the actions taken in 2020 give us a rock-solidfoundation for future success.No US Registration DisclaimerIn a number of jurisdictions, in particular in Australia, Canada, South Africa, Singapore,Japan and the United States, the distribution of this publication may be subject to restrictionsimposed by law (such as registration of the relevant offering documents, admission,qualification and other regulations). In particular, neither the merger consideration sharesnor any other securities referenced in this publication have been registered or will beregistered under the United States Securities Act of 1933, as amended (the “U.S. SecuritiesAct”) or the securities laws of any state of the United States and as such neither the mergerconsideration shares nor any other security referenced in this publication may be offered orsold in the United States except pursuant to an applicable exemption from registration underthe U.S. Securities Act. This publication is neither an offer to sell nor the solicitation of anoffer to buy any securities and shall not constitute an offer, solicitation or sale in the UnitedStates or any other jurisdiction in which such offering, solicitation or sale would be unlawful.This publication must not be forwarded, distributed or sent, directly or indirectly, in wholeor in part, in or into the United States or any jurisdiction where the distribution of thesematerials would breach any applicable law or regulation or would require any registration orlicensing within such jurisdiction. Failure to comply with the foregoing limitation may resultin a violation of the U.S. Securities Act or other applicable securities laws.ContentsKonecranes in 20203Year 2020 in numbers4CEO’s review6Megatrends9Strategy11Business Area reviews13Reasearch and technology development20Sustainability22Konecranes as an investment25Information about Konecranes’ Annual Report 2020Konecranes’ Annual Report 2020 consists of three separate reports: Annual Review, Governance and Financial Review, and Sustainability Report. All documents aredownloadable on our Annual Report website at https://investors.konecranes.com/annual report 2020.This publication is for general informational purposes only. Konecranes reserves the right at any time, without notice, to alter or discontinue the products and/or specificationsreferenced herein. This publication creates no warranty on the part of Konecranes, express or implied, including but not limited to any implied warranty or merchantabilityor fitness for a particular purpose.
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentKonecranes in 20202020 was a year like noother, and fundamentallytransformative forKonecranes and theworld around us.The acquisition of MHE-Demag was completed in early 2020. The combinedoperations of Konecranes and MHE-Demag started on January 2, 2020. Withthe acquisition, Konecranes increased its presence and market coverage in thestrategically important and fast-growing Southeast Asia.Investments made in technology came through in the year of the COVID-19pandemic. Our TRUCONNECT crane utilization data and digital telemetry assisted usin real-time demand-supply balancing and in tailoring our service for our customers.In the area of sustainability, we showed strong leadership in work safety,implementing fast and effective actions to mitigate the impact of COVID-19 on thewell-being of our employees and the business. We made important advances inmapping human rights related risks and focus areas. We signed the Science BasedTargets Initiative (SBTi) commitment and sharpened our approach on managingclimate change risks and opportunities.In Diversity & Inclusion, we focused extensive efforts on internal awarenesscreation. Appreciation of diversity and building a culture of inclusion were reflectedin many internal tools and practices. An all-employee training on unconscious biaseswas rolled out across the company.86Automated StackingCranes delivered to theVirginia Port AuthorityA planned merger between Konecranes and Cargotec was announcedon October 1, 2020 and the shareholders of both companies approved the planin December. The Future Company will be a customer-focused global leader insustainable material flow. The completion of the merger is currently expected totake place on January 1, 2022, given all conditions and merger control approvalsfor completion are fulfilled.We are committed toreducing our energy intensity(MWh/sales) by 25% andgreenhouse gas emissionintensity (tCO2e/sales) by50% during 2017–2025.Important deals and deliveries were closed, new product features madeavailable. We finalized Konecranes’ largest-ever delivery of 86 Automated StackingCranes for the Virginia Port Authority in June and secured important deals onthe next-generation S-series overhead cranes. We introduced a new customerapplication called CheckApp for Daily Inspections to support customers in theirself-service, and released a fully electric forklift truck, the E-VER, adding the latesteco-efficient technology to our conventional lift trucks.3Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentThe year 2020 in numbers2,727.3MEUR (-13.9%)Order intake1,715.5MEUR (-6.3%)Order book3,178.98.2%MEUR (-4.4%)Net salesAdjusted EBITA margin2,30046.1%Number of active andpending patentsGearing4Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsOrders by customer segments, 2020R&DSustainabilityKonecranes as an investmentBeing close to our customers through a local presenceOrders by customer segments, 20208%4%5%PowerTransportationEquipmentConstruction andengineering9%7%Metals ProductionDistributors4%Paper and Forest26%GeneralManufacturing32%Container handling1%Chemicals5%Net sales per region, 2020Net sales per region, 2020MiningPersonnel by region, 2020Personnel by region, 202016%25%APAC 498.4 MEURAPAC 4,21054%31%EMEA 1,703.9 MEURAME 976.6 MEUR18%AME 2,96457%EMEA 9,688Percentages have been rounded and may not total to 100%.5Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentCEO’s reviewDear Shareholders,2020 was a year like no other, and fundamentallytransformative for Konecranes and the world around us.The COVID-19 pandemic exacted human and economiccosts unseen for generations, forcing companies globallyto rapidly adjust to the volatile conditions. Against thischallenging backdrop, we took rapid action to protect thehealth and safety of our people, and moved quickly toensure business continuity and performance in the shortterm and sharpen our strategy for the longer term. Inaddition, we made meaningful progress in delivering onour commitment to operate more sustainably and to helpour customers do the same. In October, we announcedthe most important development for Konecranes in our26-year history as an independent company: our plan tomerge with Cargotec to create a global leader in sustainablematerial flow. Simply put it was an extraordinary 12 months,capped by strong earnings to end the year, giving us goodmomentum and positioning us well for the future.I will share more details about these remarkableachievements below, but before doing so I would like toexpress my deep gratitude for your support throughoutthe year. My thanks also go to Konecranes employees andour business partners for their unwavering commitment tosafety and ensuring uninterrupted mission-critical operationsduring a time of extraordinary global uncertainty. Thepandemic has humbled and defeated businesses around theworld, and I am proud of how we have all worked throughthis pandemic together and are emerging even stronger,ready to seize the many opportunities that arise from thisperiod of unprecedented upheaval.Rapid pandemic responseAs the coronavirus rapidly spread globally in early 2020,countries began to impose extensive restrictions on thedaily conduct of people and businesses, impacting ourability to access customer premises and manufacture,deliver, install and service equipment. Restrictions ofvarying severity remain in force around the world at thetime of this writing, although the rapid development ofvaccines and their ongoing rollout give cause for hopelater in 2021.As this crisis unfolded, Konecranes prioritized the safetyof its personnel and customers, many of whom wereplaying central roles in safeguarding the continuous flow offood, medical supplies and other fundamentally importantmaterials. In particular, Konecranes took rapid steps to: Leverage the real-time insights from our tens ofthousands of connected devices and pieces of equipmentaround the world to balance demand and supply inreal time and ensure our operations fully support ourcustomers. Examine all facets of our business to ensure our costbase was competitive and aligned with the uncertainand reduced demand. This meant cost-flexing actionsthroughout our company that included temporary layoffs,reduced working hours, streamlined spending andpermanent cost adjustments.6The pandemic has reinforced the importance ofdigitalization, and companies like Konecranes which havehad the foresight to invest in a broad digital footprinthave benefitted as a result. Our connected equipmentgives Konecranes and its customers unmatched insightinto daily operations and ensures optimal availability andperformance. This large, connected fleet provides valuableusage data, and we are excited about the additionalopportunities this will bring as we move into 2021.Strategic initiatives deliver resultsIn parallel with these actions, and following the integrationof the MHPS business and full acquisition of MHE-Demagwhich was completed in January 2020, we advancedour strategy, deciding to extend beyond lifting into thebroader material flow of our customers and identifying andexecuting the following key initiatives: Service revenue and profitability growthIndustrial Equipment profitability improvementImproved project managementLean operationsProcurement excellenceBusiness process efficiency improvementWe gained good traction with this work already in 2020,as evidenced by the financial results of our three businessareas.In Service, our growth engine, the 2020 adjusted EBITAmargin rose to a record 17.2 percent, an impressiveAnnual Review 2020
Konecranes in 2020achievement given the challenges of the pandemic,which dented sales. Our Service agreement base gave usresilience in dealing with the business impact of COVID19, as did our digital investments. An example here isour new self-service customer application, CheckApp forDaily Inspections, a digitalized and cost-effective way forcustomers to record and retrieve daily inspection datathat can be used for internal auditing and compliance.The integration of MHE-Demag extended our capabilitiesin Southeast Asia with some 700 service engineers andbrought us additional industrial products to service.Industrial Equipment (IE), which struggled in 2019 as itstreamlined manufacturing and took one-time process cranecosts, rebounded nicely in 2020. Its full-year adjusted EBITAmargin improved to 2.3 percent from 1.5 percent a year ago– powered by a strong second-half adjusted EBITA margin ofover 5 percent – despite a fall in sales due to the pandemic.IE benefited from the incorporation of MHE-Demag, whichsignificantly broadened our footprint in Southeast Asia.We saw good order momentum in the automotive andenergy sectors, and the first orders for our innovative nextgeneration S-series cranes. IE also renewed its operatingmodel to increase efficiency, took important steps to turnaround its unprofitable ETO (engineered-to-order cranes)business, reduced its factory footprint and centralizedprocess crane-related personnel in Finland and in Germany.Port Solutions reported lower net sales and profitabilityin 2020 due to the pandemic, but finished the yearstrongly with record order intake and sales in the fourthquarter. The business took big steps during the year withits Path to Port Automation strategy, winning a deal for34 automated stacking cranes with DP World AntwerpCEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityGateway, finalizing its delivery of 86 automated stackingcranes with the Virginia Port Authority, and continuingits port automation projects with the Hadarom containerterminal in Israel and Abu Dhabi in the United ArabEmirates. Port Solutions also booked its largest-everreach stacker contract in 2020 – 39 units for the GermanBundeswehr (Federal Armed Forces).Meaningful steps in sustainabilityWhile Konecranes delivered excellent operational andfinancial performance under challenging circumstances, Iam proud that we did this while making significant progressin our efforts to ensure that, together with our customersand suppliers, we operate more sustainably to reduce ourclimate and environmental impact.Konecranes signed the Science Based Targets Initiative(SBTi) commitment letter and will define new climatetargets for our business in 2021. We are alreadysystematically focusing on reducing the carbon footprintof our own operations and charting emissions from oursupply chain as well as from the products and solutions weprovide for our customers; committing to the SBTi takesthese efforts to the next level. One key development onthis front in 2020 was the release of our fully electric forklifttruck, the E-VER, which is powered by an efficient Li-ionbattery and combines the quality, power and productivityof our conventional lift trucks with the latest eco-efficienttechnology. In comparison with a standard diesel engine,Konecranes E-VER has zero direct emissions and cutsenergy consumption by up to 70 percent.We also announced we have partnered with The OceanCleanup, the Dutch non-profit organization developing7Konecranes as an investmentadvanced technologies to rid the oceans of plastic, todesign, manufacture, and service The Ocean Cleanup’sInterceptor , which extracts plastic from rivers beforeentering the world’s oceans. This ramping up of productionis an important step as the non-profit prepares to tacklethe world’s 1,000 most polluting rivers.As our sustainability work continues, we have wonrecognition for the progress shown so far. Konecranesreceived an A- rating in the CDP’s climate program anda leadership ranking – something uncommon for capitalgoods companies – based on our 2019 disclosure on actionsto cut emissions, mitigate climate risks and develop thelow-carbon economy. I encourage you to read our 2020Sustainability Report to get an update on the breadth of ouractivities in this area.Creating a global leader in sustainablematerial flowThese are all important and positive developments. Andthere is no doubt that the most important one of the yearwas the October 1 announcement of our merger planswith Cargotec. The combination is a compelling fit of twoNordic industrial companies with a global perspective,and underpins our strategic plans and growth ambitions.Together we aim to create value for shareholders andbe the lifecycle partner for customers, solving theirsustainability challenges through innovation with our teamof top global talent.The merger represents the exciting next step forKonecranes as we extend our core lifting business furtherinto the sustainable material flow value stream, meetinggrowing customer demand for more comprehensiveAnnual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentsolutions, products and services. The agreement is thelatest in our long history of growth through successfulM&A, as seen with the MHPS business and MHE-Demagacquisitions.In December, Konecranes and Cargotec shareholdersapproved the merger plan, and my thanks go to allKonecranes shareholders for your trust. With this backingnow secured, we will begin to ramp up planning for thefuture company, communicating regularly and transparentlyas we move towards the expected completion of the dealon January 1, 2022. Until then, both companies will operatefully separately and independently.Focus and commitmentWhile the prospect of joining with Cargotec is anexciting one, we will maintain our clear focus on highperformance, continuous improvement and sustainability.This distinguishes great companies from the merely goodones, and it is our commitment to our shareholders, ourcustomers and ourselves. I am confident we will do this,and we will do this together.Warm Regards,Rob SmithPresident and CEO8Annual Review 2020
Konecranes in 2020Megatrendsdriving Konecranes’businessCEO s reviewStrategyBusiness Area ReviewsR&DKonecranes recognizes fourmegatrends that especially havean impact on our customers andbusiness operations. They providegreat opportunities for us to developour business further.9SustainabilityKonecranes as an investmentSustainabilityKonecranes’ offering helps and supports customers to shiftto a low-carbon future and reduce their environmentalfootprint through eco-efficient products and service solutions,accelerating circular economy. Through digitalization we offertools to improve the productivity, serviceability and lifetime ofequipment. We aim to improve the safety of our customerson all levels by incorporating safety into the design,manufacture, maintenance and service of our products.Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an eraging digitalization provides great possibilities forKonecranes to automate equipment, processes and entirecustomer operations from manufacturing to port operations.Digitalization allows us to collect more and higher-qualitydata from our customers’ operations. We can use this to,for example, provide better maintenance services thatpredict equipment failures before they occur, and optimizeservice activities according to customers’ production cycles.Productivity improvement continues to be a priority for allcompanies, and especially so in capital-intensive industrialproduction. Konecranes places a strategic focus on thecrane as part of the entire material handling ecosystem.Changes in geopolitics, and especially the increasedprotectionism seen in many markets over the past fewyears, are reflected in the operating environment andconditions of businesses across the world.We offer customers many solutions which improveproductivity and profitability through smart, connectedequipment and optimized maintenance. Examples includeKonecranes’ lift trucks for both ports and industrial clients,our offering in automatic warehouse management,automated guided vehicles for maneuvering large containersin ports and our monorail systems employing overhead railsto transport materials within factories.From onshoring to protecting vulnerable supply chains tonavigating trade wars, our approach is to continuouslyevaluate our supply network and strengthen it to weatherchanging external conditions that impact our industry. Ourbusiness portfolio also benefits from being diversified. Thishelps to protect us from regional and segment volatility.Digitalization also introduces new cybersecurity risks whichmust be mitigated. Cybersecurity is an increasing customerpriority. As a technology leader, Konecranes applies industrybest practices in this area.10Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentStrategyOur strategy leverages the global megatrends and our key competencies, with afocus on accelerating growth and increasing profitability through strategic choicesand initiatives, the material flow concept and the planned merger with Cargotec.Strategic choicesStrategic initiativesThe planned merger with CargotecWe describe the backbone of our business approach with aset of strategic choices:We have identified key strategic initiatives to strengthenour core competencies: Service revenue and profitabilitygrowth, Industrial Equipment profitability improvement,project management, lean operations, procurementexcellence and business process efficiency improvement.These initiatives drive our activities, ensuring we continueour high-performance focus.In October 2020, Konecranes and Cargotec announcedtheir plans to combine the two companies through amerger to create a global leader in sustainable materialflow. The Future Company will be well positioned to leadthe industry shift towards increased sustainability withits valuable customer-facing brands and complementaryofferings across its businesses in industries, factories,ports, terminals and road and sea-cargo handling. TheFuture Company is expected to deliver value by capturingsynergies and growing faster than the market, being thelifecycle partner for its customers, solving the sustainabilitychallenge through innovation, positioning itself well to growin material flow and by creating and combining a team oftop global talent.Customer choice: We serve a diversified customerbase across many industries, which gives greaterstability and resilience against downturns in thedifferent sectors.Offering choice: A broad lifting equipment offeringwith high share of services. We service both our ownand 3rd party equipment.Technology choice: Our Core of Lifting approach,an integrated package of gears, motor and controlsdesigned by Konecranes, gives a competitive advantagefor all businesses.Go-to-market choice: Two channel (direct andindirect), multi-strategy in both Industrial Equipmentand Port Solutions.Sustainability choice: Committed to sustainability andresponsible business practices.Profitable growth is strongly correlated with customersatisfaction, employee engagement and an innovativeoffering. An industry-leading company excelling in profitablegrowth has the means to invest in innovative products andservices, attract and retain the best talent and consistentlydeliver a world-class customer experience.The material flow conceptTo support growing customer demand for more comprehensive solutions, products and services, we have extendedour ambitions beyond lifting into the broader material flow.We aim for a seamless and integrated material flow beyondcranes and port equipment with real-time tracking. Weprovide advanced services with a complementary softwareoffering to ensure optimized operations for our customers.11Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentVisionWe know in real time how millions of lifting devices perform.We use this knowledge around the clock to make our customers’operations safer and more productive.MissionWe are not just lifting things, but entire businesses.STRATEGIC CHOICESCustomer choiceOffering choiceTechnology choiceGo-to-market choiceSustainability choiceSTRATEGIC INITIATIVESService revenue andprofitability growthIndustrial Equipmentprofitability entexcellenceBusiness processefficiencyimprovementMATERIAL FLOW CONCEPTPORTSOLUTIONSINDUSTRIALEQUIPMENTSTS craneYard cranesOverhead cranesLifting hoistsMobile equipmentHorizontal intrafactory logisticsSoftware andoptimizationLoading equipment12Software andoptimizationMaintenance andspare partsMaintenance andspare partsInspection, trainingand consultingInspection, trainingand consultingAnnual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentBusiness Area reviewsServiceIndustrial EquipmentPort SolutionsBusiness Area Service provides industry-leading maintenanceservices for all types and makes of industrial cranes andhoists. Our objective is to improve the safety, productivityand sustainability of our customers’ operations. Lifecycle Careis our comprehensive and systematic approach to managingcustomer assets; we connect data, machines and people todeliver a digitally-enabled customer experience in real time.Business Area Industrial Equipment offers hoists, cranesand material handling solutions for a wide range ofcustomers from General Manufacturing to various kinds ofprocess industries like Waste-to-Energy, Paper and Forest,Automotive and Metals Production. Products are marketedthrough a multi-brand portfolio.Business Area Port Solutions offers a full range of mannedand fully automated container cranes, mobile harbor cranes,manned and fully automated straddle carriers, heavy-dutylift trucks, and automated guided vehicles. It also comprisesa complete array of shipyard cranes and Terminal OperatingSystem (TOS) and Equipment Control System (ECS) software,optimizing operations of entire container terminals.13Annual Review 2020
Konecranes in 2020CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentServiceRecord profitability despite pandemicPerformance and profitability improvement in the faceof global economic uncertainty was the emerging storyin 2020 for Business Area Service. A strong Serviceagreement base gave us resilience for dealing with thebusiness impact of the COVID-19 pandemic. Previousinvestments in the digital ecosystem came through in 2020with improved productivity. Based on customer data fromour TRUCONNECT Remote Monitoring service, we wereable to achieve dynamic, real-time planning that allowedus to leverage resources according to our customers’ fastchanging, pandemic-affected needs. We also implementedboth temporary and permanent cost flexing actionsthroughout the year, which supported profitability.COVID-19 affected Service net sales especially in thesecond quarter of 2020, as scheduled maintenanceactivities were postponed due to access restrictions andregional lockdowns. Despite the physical restrictions, manymission-critical industries continued to operate, and somecustomers took advantage of the production downtimeby servicing their assets. COVID-19 did not lead to majororder cancellations within Service, but scheduled work andprojects were postponed.Service order intake and sales were impacted by the lowerindustrial activity due to COVID-19, especially in SoutheastAsia and the Americas. Following a challenging secondquarter, order intake and sales recovered sequentially bothin the third and fourth quarters as businesses adjusted tothe pandemic and local physical restrictions were eased.14Annual Review 2020
Konecranes in 2020A big thanks goes to our colleagues working in the frontlines who visit customer sites and keep our customers’operations going during the pandemic in a safe way. Ourown response to COVID-19 was based on effective sharingof best practices about safe work protocols, active teamcommunications and – importantly – technology, whichbrought increased flexibility. Digitalization allowed for morecustomer self-service, as well as innovation about the waywe do our own work, such as increasing remote sales.HighlightsIn 2020, we introduced a new customer application,CheckApp for Daily Inspections, to support customers intheir self-service. It provides a digitalized and cost-effectiveway for recording and retrieving daily inspection data thatcan be used for internal auditing and compliance. TheCheckApp is an important milestone in our continuousefforts to improve the customer experience by developingdigital solutions.CEO s reviewStrategyBusiness Area ReviewsR&DSustainabilityKonecranes as an investmentStepping up to helpcustomers in difficult timesA key pursuit in 2020 was also the integration of MHEDemag. Konecranes acquired the remaining other 50percent stake of the joint venture, a leading supplier ofindustrial cranes and services in Southeast Asia, at thestart of the year. By Q3 2020, we were working in a jointorganization. MHE-Demag extended our service capabilityby some 700 service engineers and with additional industrialproducts to service. For full-year 2020, on a reported basis,Service’s order intake and sales increased in APAC as aresult of the consolidation of MHE-Demag. The profitabilityof MHE-Demag met expectations despite the COVID-19effect on business volume as MHE-Demag adjusted itscapacity to demand efficiently.While 2020 was certainly challenging due to COVID and relatedrestrictions, we were able to step up to help our customers whenthey needed us most. U.S. – Automotive: This customer asked if we could continueto provide support during their COVID shutdown. In a few ofthei
Konecranes in 2020 Year 2020 in numbers CEO's review Megatrends Strategy Business Area reviews Reasearch and technology development Sustainability Konecranes as an investment 3 4 6 9 11 13 20 22 25 Contents 2020 will be forever associated with the COVID-19 pandemic. On its own, the rapid global spread of the virus and a company's reaction .
