A press release announces and highlights the main features of the downloadable Koenig & Bauer 2019 annual report. With its strategic focus on the growth market of packaging, Koenig & Bauer is on track to reduce its dependency on the politically volatile security printing business. Through the acquisitions of Iberica and Duran, the joint venture with Durst, as well as various partnerships in software, the portfolio for packaging printing markets has expanded even further.
Following a testing phase of the CorruCUT sheetfed flexo press for direct analog printing on corrugated board, K&B’s prestigious pilot customer and development partner Klingele accepted the machine after a demanding factory acceptance process. The flexo press is now running in two shifts at the Klingele plant in Delmenhorst near Bremen in Germany. The CorruFLEX order from Thimm Packaging Systems is a strategically important follow-up order in corrugated board printing.
As far as digital decor printing, Interprint has ordered the third RotaJET. After the sixth press sale for digital decor printing and the key order from Tetra Pak for digital full-color beverage carton printing, the RotaJET digital printing platform is a market success. Koenig & Bauer’s service initiative launched in 2016 is also bearing fruit. The service revenue share in the Koenig & Bauer group increased significantly from 25.9% in the previous year to 28.2% in 2019.
CEO Claus Bolza-Schünemann: “The end markets we address are fundamentally intact with packaging printing showing good structural growth. However, growth requires normal business years. Due to the increasing economic uncertainty, we decided to invest significantly in reducing manufacturing costs, [partly by joining] forces within the group more strongly. With these measures, we aim to position ourselves to a greater extent, independent of the economy and more competitively for the future.”
Dr Andreas Pleßke, the Management Board member responsible for the Performance 2024 program explains, “With the Performance 2024 program, we are currently targeting reducing costs by over €70m (Rs. 560 crore) by 2024 with one-off costs of €30m to €40m. We expect the package of measures to be expanded further. The focus of the various projects aimed at optimizing group-wide structures and processes is on considerably reducing manufacturing costs to achieve a significant improvement in the earnings situation in the new machine business. It includes design-to-cost projects, purchasing optimizations, and some further measures. Bundling tasks as shared services, as well as the reduction of holding costs and SG&A expenses, are also on the agenda.”
CFO Dr Mathias Dähn adds, “In addition to the cost-cutting projects, the efficiency program aims to reduce lead times in assembly and accelerate customer acceptance. In addition to shorter delivery times, this will lead to a drop in working capital and a cash flow improvement. Moreover, we work with further activities and a sophisticated controlling of all measures with permanent monitoring on the significant reduction in working capital. We see considerable potential for improvement, particularly in security printing in terms of inventories and receivables through optimized sales management and stepping up export financing. The comprehensive package . . . also aims at more even distribution of revenue over the year in the sheetfed segment.”
Business performance in 2019 in the Koenig & Bauer group
Not all expected orders in security printing and metal decorating were awarded in 2019. Therefore order intake and order backlog of €1,141.3 million and €533.7 million respectively, were below the figures for the prior-year €1.222 billion (approximately Rs. 10,000 crore) and €610.9 million (about 4,900 crore, respectively) helped by the significant Egyptian order. With €1.2185 billion, the group revenue reached the level of the prior year (2018 – €1.226 billion).
Earnings were affected by high investments in the growth offensive in 2023. While a lack of profit contributions due to delayed or shifted contract closings and higher costs in order processing further reduced earnings, one-time income had a positive effect. On balance, a margin of 4.6% was achieved with an EBIT of €56 million (2018 – €87.4 million and 7.1%, respectively). At €38.4 million, group net profit (previous year: €64m) translates into earnings per share of €2.31 in 2019 (2018: €3.86).
Given the significantly increased uncertainties caused by the coronavirus crisis, the management board and supervisory board of Koenig & Bauer will propose to suspend the dividend for the 2019 financial year at the forthcoming annual general. The boards will recommend carrying forward the retained profit generated to a new account of the Koenig & Bauer AG holding company. The press release nevertheless goes on to say, “the fundamental policy of distributing 15% to 35% of group net profit remains unaffected.”
Sheetfed order intake grows by 8.9% to €625.3 million
In addition to the good service business, more orders for large- and medium-format presses led to growth in order intake in the sheetfed segment of 8.9% to €625.3 million (2018: €574.3 million). Compared to 2018 (€615.9 million), revenue increased by 2.6% to €631.8 million. The slightly lower order backlog of €183.4 million compared to the previous year (€189.9 million) remained at a reasonable level. Due to the product and regional mix and higher order-processing costs, the EBIT of €19.4 million was below the figure from the prior year (€35.4 million).
Digital & web
In digital and web offset presses, the order intake of €144.9 million was 18% below the prior year’s figure of €176.6 million. In addition to the shrinking web offset service business, lower orders in flexible packaging printing were the main reason for this decline. Revenue increased by 7.4% from €153.3 million to €164.6 million. On balance, the order backlog decreased from €85.8 million to €66.1 million at the end of 2019. The EBIT of – €16.5m (previous year: –€10.2m) affected by high market-entry and growth-related expenses as well as the negative result in flexible packaging printing.
In the special segment, K&B’s order intake of €406.7 million was below the prior year’s figure of €505.1 million, which was impacted by a significant order in security printing. After €491.5 million in the previous year, the revenue of €463.9 million was achieved. The order backlog at the end of 2019 was €287.3 million (31 December 2018: €344.5 million). As a result of the lower revenue, product mix, and unexpected project expenses for the major security printing order, the EBIT amounted to €43.9 million after €48.2 million in the previous year despite a one-time income.
Above-average balance sheet ratios
In addition to the high investment expenditures and the dividend payment, cash flows were influenced by one-time effects such as the significant capital lock-up resulted from the significant Egyptian order. Accordingly, cash flows from operating activities of –€7.9 million, and free cash flow of –€52.3 million were below the prior-year figures (€66.3 million and –€19.5 million respectively). The long-term credit facility syndicated by renowned banks is strengthening the group’s stability. In terms of balance sheet ratios, the Koenig & Bauer Group is well-positioned with an equity ratio of 34.3%.
Guidance for 2020 and Coronavirus
CFO Mathias Dähn comments, “Even before the outbreak of the Coronavirus, global economic conditions were demanding. Given the daily worsening global economic situation due to the Coronavirus, the impacts on our company, and the achievement of our planning are currently completely open. For 2020, we are planning to achieve a largely stable group revenue compared to the previous year and the prior year’s EBIT level without the around €10 million in special expenses from the efficiency program. Managing the possible consequences of the corona crisis is currently a top priority.”