The top contributor for both the quarter and fiscal year was Konecranes (OHEL:KCR1V), a Finnish company that specializes in the manufacturing and servicing of cranes, such as workstation cranes, industrial cranes, and cranes for shipyards and ports, as well as other lifting equipment. The company produces one out of every ten of the world’s cranes, and it sells primarily to industrial companies and to harbors and shipyards around the world. In addition, Konecranes is a global leader in maintenance, inspection and repair services.
In August 2015, a merger was announced that would bring together Konecranes and Terex, the #1 and #2 players in the industrial-lifting equipment business and two of the largest players in port cranes and equipment. Terex also has a number of businesses unrelated to Konecranes. However, in May 2016, it was announced that Konecranes was instead going to acquire the Material Handling & Port Solutions (MHPS) division of Terex without acquiring the unrelated businesses. This was the desired outcome a year ago when negotiations began with Terex, but Terex's management at the time was unwilling to sell the MHPS business on its own. After news of the MHPS acquisition, Konecranes’ share price rose 18%. We believe this is a very attractive transaction for Konecranes as there are significant cost synergies, and it will allow Konecranes’ Service business to harvest the installed base of Terex’s MHPS. Konecranes also delivered positive second quarter results in July 2016, as earnings in its Service segment and its Equipment segment exceeded market estimates. We like that the company’s cost-savings program helped to improve gross margins and lower fixed costs, subsequently improving margins during the quarter. We’ve spoken with the new CEO several times since he joined the firm less than a year ago, including most recently in August 2016. He’s demonstrated a strong attention to detail, a hands-on approach to the business, an understanding of how value is created and a clear view of where he wants to take Konecranes. We appreciate management’s efforts to restructure the company and grow the Service business, which should lead to significant improvements in the earnings potential of the company.
From David Herro (Trades, Portfolio)'s third quarter 2016 International Small Cap Fund commentary.
