Sales in engineering sector may fall appreciably already this spring

Companies’ order portfolios nevertheless currently at historically high levels

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Finland’s engineering industry, which employs just under 70,000 people, is sending mixed signals.
      New orders in the machinery and metal product branch fell in October-December by 43 per cent from the year before, announced the Federation of Finnish Technology Industries last week.
      The federation also estimates that the net sales of businesses in the sector “will be reduced clearly in the coming months” from last year. The estimates apply to operations in Finland.
      Simultaneously the large exchange-listed engineering industry companies are reporting that their order books are bulging at nearly record levels and they have their hands full of work.
     
In the coming months the situation is nevertheless expected to change, for Wärtsilä, Kone, Konecranes, Cargotec, as well as Metso all reported a significant drop in the number of orders coming in in October-December.
      Several companies in the branch issued profit warnings.
      For all that, many of the firms still see this year in a more positive light than the employers' organisation does.
      Wärtsilä predicts net sales growth of 10-20 per cent for this year. Kone expects an annual growth rate of five per cent, Konecranes a zero-growth in January-June, and Cargotec sales growth in some areas and reduction in others.
     
Only Metso, suffering from the deep problems besetting the paper and pulp industry, forecast that its net sales will fall significantly this year.
      The week before last the company announced personnel cost-cutting measures, which will target in excess of a thousand workers.
      Cargotec in turn announced in the early autumn a reduction of 700 employees and in January there was a statement about further less drastic economy measures.
      The remaining three mentioned firms have not yet reported on any impending redundancies.
      “I believe for these three it is a matter of scheduling. When the volumes start to fall, the talks of personnel arrangements will commence”, says senior analyst Pekka Spolander of Pohjola Bank. Spolander expects the order volumes to fall by tens of per cent this year.
     
In 2003-2008 the engineering firms experienced an “unparalleled” upswing, notes the Federation of Finnish Technology Industries chief economist Jukka Palokangas.
      It was their heyday in the same fashion as the late 1990s was for technology firms.
      Still, the engineering fever was on a more solid ground than the techno-bubble: the brisk growth of the developing economies such as China, India, and Russia nourished investments in these countries as well as in the West.
      The engineering companies accumulated long queues of clients that they are still unravelling.
      Many of the firms, therefore, believe that thanks to their relatively thick order books the slump will not affect them too badly at least this year.
      In Palokangas's view the already agreed orders do also contain the risk of a sudden cancellation or postponement.
      “The companies have reported that deliveries of already received orders have been postponed.”
     
Particularly cancellations within the shipbuilding industry have been a cause of worry for investors.
      If the recent years have been without parallel for the engineering industry, words fail to describe how frenzied the pace has been in laying down ships at the same time.
      Hence the long order list for Wärtsilä’s marine engines will continue to give work to people far into the year 2010. Also the order portfolio of Cargotec’s MacGregor unit - building ship loading equipment - stretches well into next year.
      Wärtsilä estimates that at the moment the cancellation risk applies to 12% of the company’s entire order portfolio.
      According to a Cargotec estimate the corresponding figure for MacGregor’s orders is 20%.
      In the view of Pekka Spolander, what helps the engineering companies to survive the downward trend is the fact that on average they are all in pretty good shape at the top of the slippery slide.


Previously in HS International Edition:
  Mass job cuts at Metso cap grim day for job news (20.1.2009)

Links:
  Federation of Finnish Technology Industries

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