This is a summary of the second quarter 2014 published today. The complete second quarter 2014 report with tables is available at http://investor.cavotec.com/results.cfm. Investors should not rely on summaries only, but should review the complete reports with tables.
A COMMENT FROM OUR CEO
Cavotec's second quarter results suffered from recent market developments and below expected revenue levels with 2Q14 revenues reaching EUR 52.7 million, a decrease of 21.8% compared to 2Q13. A contributing factor to the decrease in revenues was Cavotec's growing exposure to larger projects across several of its major markets.
The effect of this was especially evident in 2Q14 where the accumulation of orders, significant changes in order specifications and delays in project approvals on the side of the customer, with subsequent tighter delivery times, had a direct impact on both revenues and profitability for the quarter. Inventories increased significantly in preparation of strong invoicing over the coming quarters. Gross margins remain at an overall higher level compared to the same period last year, declining slightly against 1Q14 levels.
The company has obtained a covenant waiver from its lenders, which means that the Company will not need to test compliance with certain loan covenants as at 30 June 2014. Discussions with lenders are currently on-going to secure a long-term solution. We expect to comply with covenants once FY14 targets have been achieved.
Cavotec's order book increased 36.5% compared to the same period last year, with the order book at June amounting to EUR 139.8 million. MoorMaster™ and AMP projects comprise approximately 44.8% of the current order book, highlighting the strength of Cavotec's core innovations and their broad acceptance by the market.
This is further underlined by the fact that our engineering and production facilities, including installation and commissioning services, are currently involved in seven significant MoorMaster™ projects in varying stages of completion. These orders are for customers spread across the globe including Jan de Nul in Australia, LKAB and Norled in Norway, Port of Beirut in Lebanon, St. Lawrence Seaway in Canada, Samsø municipality in Denmark, and Transnet in South Africa.
Continuing on from the successes already seen earlier this year, 2014 has truly become the year of the MoorMaster™ systems. This is further strengthened by the following 2 orders received during 2Q14.
The first is a milestone order for the US Navy, where Cavotec will supply a number of MoorMaster™ automated mooring units to specialist deep-water engineering group Oceaneering International Inc., as part of the Advanced Mooring System Phase III Development project conducted by the Office of Naval Research. The MoorMaster™ units will be fitted to Navy demonstration vessels for at-sea testing in 2015.
A second success for MoorMaster™ in 2Q14 came from the Port of Helsinki in Finland where six MoorMaster™ MM400 units are to be installed at the Länsisatama berth. The units will be used to moor large passenger ferries, up to six times a day, on the Helsinki — Tallinn route and are due to be commissioned by the end of 2015. The introduction of automated mooring at the Port of Helsinki is one of a number of initiatives undertaken with the support of the EU's TEN-T transport infrastructure programme.
Cavotec's latest Alternative Maritime Power (AMP) shore power equipment projects are for three separate customers, two of which have ordered the new AMPtainer system. These units, which will be fitted to a total of eight container vessels, will enable the ships to connect to shore power, thereby allowing the vessels' engines to be turned off while at the berth.
LOOKING AHEAD Despite a strong order book, which includes a significant percentage of larger projects, the ongoing turbulence in the market has decreased our visibility for the coming quarters. Coupled with a softening day-to-day business we have decided to adjust our FY14 revenues target to EUR 225 to 235 million with an EBIT margin of approximately 6%. (previous guidance EUR 250 million and 8% EBIT margin).
We expect to complete and deliver current major projects registered in the order book within FY14, contributing strongly to achieving revenue and profitability targets. Cavotec INET continues to burden the Group results, however, the ongoing restructuring and harmonization of processes is expected to positively contribute to the Group's results in 2015. Cost control and operational efficiency programmes have been expanded and we are currently reviewing ways to further rationalise operational procedures throughout the Group.
Ports & Maritime represented 48% of the Group's revenues in 1H14 and remained Cavotec's largest MU. The increase of nearly 3% compared to the same period last year underlines the continued success of both MoorMasterTM and expanded AMP product offerings. We expect this MU to continue its growth, capitalizing on both core innovations and more mature product ranges.
The Airports MU represented 20.5% of the Group's revenues in 1H14, a contraction of 5.4% compared to 1H13. Despite this declining trend in preceding quarters, we expect this MU to benefit considerably over the coming period from the extensive airport related investments planned in the Middle and Far East regions.
Mining & Tunnelling represented 13.5% of the Group's 1H14 revenues, a slight increase over the same period last year. Currently the Group's smallest MU, mainly due to the continued softening in the hard rock mining sector, we expect recently launched innovations to partially offset this trend and open up opportunities outside of the more traditional niches within the MU.
The General Industry MU contributed 18% to the Group's revenues in 1H14, a small increase on the same period last year. Segments within this MU, including defense and EV markets, are set for continued long-term growth. We expect stable development for this MU over the coming period.
The Americas continued an excellent trend in order intake in 2Q14, bolstered by a positive mix of day-to-day business and larger projects. 1H14 order intake amounted to EUR 43,230 thousands, up 31.7% compared to 1H13. Softer 1H14 revenues lead to a gross operating loss for the segment.
Order intake for Europe amounted to EUR 97,279 thousands in 1H14, in line with 1H13 levels thanks in part to the strong demand in Ports & Maritime. Revenues were lower in 1H14 than 1H13, mainly due to large deliveries of MoorMasterTM projects in the comparative period. The segment provided EUR 5,632 thousands, the largest contribution to the Group's gross operating result for the period.
Revenues for the Middle East, Africa & India region declined in 1H14 compared to 1H13. This was due the com
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