04.05.2011

Positive results from Demag

Demag Cranes, currently the object of a hostile takeover from Terex, has reported its half year numbers.

Revenues for the six months were €485.8 million up 11.2 percent on the same period last year, with order intake of €561.9 million, up 40.4 percent on last year. Profit after-tax jumped 60.1 percent to €14.4 million.

The second quarter was even more positive with revenues up 12 percent to €254.6 million, while orders climbed 28.8 percent to €277.9 percent leaving an order book of €378 million- over 30 percent higher than at this point in 2010.
After-tax profit was up almost 64 percent to €7.5 million.

A statement from the company which raises its forecasts for 2011 said:
"Thanks to our excellent business performance in the past six months, we are raising our guidance figures for financial year 2010/2011 as follows: as of today, our Group revenue target for the current financial year is in the range of €1.02 billion to €1.05 billion (previous guidance: €970 million to €1.0 billion)."

The company has noted the cash offer from Terex to its shareholders, and acknowledges that its management has held several meetings with Terex but feels that a merger is not in the best interests of the company or its owners. It reserves any direct comment on the latest offer until after Terex has published the full details later this month.
Click here to see Terex bids for Demag

Vertikal Comment

Demag has fared far better than Terex through the recession, remaining in profit throughout. However Terex will note that this is a result of the group being overly cautious during the strong economic growth periods, and can make a positive comparison with what it has done with Demag mobile cranes during the same period.

While the total growth from when the two parts of the business were separated almost nine years ago, until today is not as dramatic as it was, during the good years the gap was substantial with the mobile crane business performing far more strongly in terms of revenues, profits and market position.

Today the largest part of the Demag Cranes business is industrial cranes – largely electric overhead models – but the division is currently losing money. The Gottwald port crane business is the smallest of the three businesses and is just profitable. It is the Services operation, roughly a third of the company’s revenues that makes all of the profits and is possibly what Terex has its sights set on?

The question is are shareholders better off holding on to their shares in Demag and pushing the management harder, OR swapping their shares in for a stake in Terex? Much, if not all, depends on the type of shareholder. In comparison with Demag Terex is something of a roller coaster – rising fast and high when times are good but plunging steeply during downturns. It is true that by merging with Demag the business will be less construction cycle dependent, but what will not change is the Terex leadership which quite simply is bolder and more aggressive than that of Demag.

Shareholders must choose the driver they want for the ride ahead and make their decision. Given that we are at the bottom of the cycle- perhaps a fast driver is the best decision for now? Leaving the option to bail out if or when the ride gets a little too exciting. That may not suit those that like to stay put for the long-term though.

Watch this space