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Order and sales shortfall strains earnings
Third quarter report for Koenig & Bauer (KBA)
- Weak web press market continuing
- Subdued demand in sheetfed and special presses
- Measures to cut personnel and production costs taking effect
- Positive cash flow, solid financial profile and high liquidity
- Portfolio expansion in growing packaging segment
- Realignment should sustainably improve earnings
- Outlook for 2013: Profit before special expenses
Koenig & Bauer (KBA), the world’s second-largest press manufacturer, has scaled down its expectations for 2013. Although previous restructuring measures are taking effect, in the first nine months KBA’s sales and order figures suffered substantially due to market and economic developments. The management now seeks to sustainably improve earnings by advancing the realignment of the group. By the end of the year KBA thus expects negative impacts from restructuring expenses and impairments, the exact amount of which is currently not quantifiable. The company, which has a broad portfolio of sheetfed, web, special and digital press lines addressing diverse print markets, is particularly feeling the effects of the significantly reduced market volume for web presses. In addition, business with sheetfed offset presses and systems for banknote printing was more restrained than expected.
In the third quarter the volume of new orders in the KBA Group was 7.4% up on the corresponding figure for 2012. For the whole nine months, however, order intake at €709.6m was 14.1% down on the prior-year figure boosted by Drupa (€826m). Additionally, postponed special press shipments led to a 20.3% drop in group sales to €729.9m compared to the previous year (€916.2m). Group order backlog of €627.7m at 30 September was also lower than 2012 (€735.5m). Due to the shortfall in sales and restructuring expenses the operating result came to –€10.7m in comparison to +€18.9m last year. Including a financial loss of –€5.6m, KBA posted a pre-tax loss (EBT) of €16.3m. In the first nine months of 2012 the company showed a profit of €10.8m. Group net results stood at –€20.2m (2012: +€4.5m), which corresponds to earnings per share of –€1.22.
Diverse development within segments
KBA achieved the highest figure for the last four quarters in its sheetfed offset segment with new orders from July to September totalling €164.7m. The company’s strong position in the folding carton and metal-decorating market segments has borne fruit. However, after nine months order intake of €458.5m in this division was 11.5% lower than last year’s figure which benefited from Drupa. At €381.4m sales were a modest 3.5% below the previous year (€395.4m). The sheetfed segment posted an operating profit of €1.6m in the third quarter thanks to cost cutting and slightly better prices. At –€7.8m after nine months the operating result was significantly better than in 2012 (–€21.3m).
Despite KBA’s strong position in newspaper printing and the first orders for the new digital press, new orders in the web and special press fell 18.5% to €251.1m, compared to €308.2m in 2012. Along with investment reluctance of web printers, the security press business which has slowed since the previous year also contributed to this decline. To 30 September sales of web and special presses came to €348.5m, around two-thirds of the prior-year figure of €520.8m. Insufficient capacity utilisation at KBA web press facilities and a smaller earnings contribution of special presses reduced operating result after nine months from €40.2m in 2012 to –€2.9m.
More domestic sales
An increase in domestic sales of nearly 50% compared to 2012 reduced the export ratio to 80.4%. At 25.2% (2012: 29.7%) the volume of shipments to other parts of Europe was far below the historical average due to economic weakness. Revenue in the region Asia/Pacific rose from 24.4% to 28.9%. North America contributed 11.2%, Africa and Latin America 15.1% to the group total.
Solid financial profile and positive cash flows
Although inventories swelled in preparation for shipments in the fourth quarter, cash flows from operating activities were clearly positive at €30m. This was mainly due to higher customer prepayments and a reduction in trade receivables. After deducting cash flows for investing activities the free cash flow came to €2.1m. Along with ample credit lines, funds stood at €183.7m. Less bank loans down to €14.9m, net liquidity stood at €168.8m. High net liquidity and an equity ratio of 34.9% underscore the continuing solid financial profile of KBA.
Capacity adjustments continue
Including 114 career starters at the end of September KBA had 6,218 employees on its group payroll, 94 fewer than twelve months earlier. The training ratio rose from 6.5% to 7.1% with 444 apprentices and trainees group wide. The total at the already consolidated companies belonging to the group is expected to fall further when approved measures and the planned realignment come into effect.
Outlook for 2013
Despite strong sales in the fourth quarter typical for the industry, KBA management expects lower annual group sales of around €1.1bn compared to last year (€1.29bn). Revenue of web and special presses will fall further behind last year than sheetfed presses. The KBA subsidiaries targeting metal-decorating and industrial coding will reach or even exceed their targets.
Management considers the sales and earnings targets for 2013 announced in March and already subdued in the half-year report on 9 August to be no longer attainable. CFO Dr Axel Kaufmann: “Along with the total group sales to be generated by the end of the year, the product mix delivered as well as the extraordinary expenses for restructuring measures and impairments will have a significant impact on the annual result in the group. Currently this amount is not yet foreseeable, but will lead to a loss in 2013. Excluding special items, we are still targeting a positive operating result and balanced group earnings before taxes (EBT).”
CEO Claus Bolza-Schünemann: “We will provide further information on group realignment by the end of the year as soon as the concept planned is adopted by the management and supervisory boards.”
KBA aims to compensate at least in part for the loss in business volume in other fields and sustainably strengthen profitability by expanding its service activities and its product portfolio for growing market segments. Following initial market success in digital printing, Kammann Maschinenbau a profitable niche vendor and global market leader in printing systems for directly decorating glass containers joined the KBA Group in the third quarter. The majority takeover of the Italian press manufacturer Flexotecnica which serves the expanding flexible packaging market, will also be completed shortly.
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