KBA Profits from Strong Standing in Niche Markets

WÜRZBURG, GERMANY—Nov. 15, 2011—While the third quarter saw demand in the press engineering sector slow, German press vendor Koenig & Bauer AG (KBA) profited from a strong presence in niche markets such as security printing, metal decorating and industrial coding, where demand is robust. In the summer quarter, the group booked new orders worth €472.8m, the highest level since the record year of 2006. The order intake for the nine months to October was up 15.4 percent at €1,155.7 million (2010: €1,001.2m). The order backlog passed the €800 million mark for the first time since summer 2008, totalling €810.8m. However, revenue for the full nine months rose by just 1.8 percent to €785.7 million (2010: €772.1m).

Delayed shipments and substantial charges for further capacity cuts at KBA’s underutilised web press production plants led to a pre-tax loss of €15.6 million for the third quarter and €26.6 million for the full nine months (2010: –€6.7m). The group posted a net loss of €32.5 million (2010: –€9.2m), which corresponds to earnings per share of –€1.97 (2010: –€0.56).

Patchy performance in both business divisions
With demand flagging, the total volume of incoming orders for sheetfed offset presses was just 2.2 percent higher at €472 million (2010: €462m). This contrasted with brisk business in niche products, which boosted the volume of new orders for web and special presses by 26.8 percent to €683.7 million (2010: €539.2m).

Sheetfed sales, however, climbed by 14.9 percent to €397.4 million (2010: €346m), whereas sales of web and special presses slid by 8.9 percent to €388.3 million (2010: €426.1m), largely due to shipping delays. But despite the loss of revenue, and the need for additional provisions to fund personnel adjustments, KBA’s web and special press division posted a modest profit for the nine months. In the sheetfed division, pricing pressures and the substantial upfront expense associated with developing new products for the Drupa trade fair next year outweighed the cost savings achieved, eliminating any operating profit.

Exports account for around 85 percent of group sales
A 28 percent jump in domestic sales trimmed the export level to 84.6 percent. The volume of group sales generated in the rest of Europe rose from 30.3 percent to 36.1 percent, and in North America from 9.7 percent to 10.4 percent. The figure for Asia and the Pacific remained high at 26.7 percent. Latin America and Africa accounted for 11.4 percent of total group sales, which is closer to their historical average than the prior year’s 21 percent.

Higher cash flow and solid finances
Cash flows from operating activities swelled from €11.6 million a year before to €64.6 million following an increase in customer prepayments and a drop in trade receivables. This more than covered cash flows for investing activities and raised the free cash flow to €40.7 million. Funds totalling €128.1 million and ample credit lines, underscore KBA’s strong financial position. Compared to the higher balance sheet total the group’s equity ratio was a sound 36.7 percent.

Targeted reduction in group payroll to 6,000
At the end of September there were 6,446 employees on the group payroll, just a few more than in 2010 even though three subsidiaries were consolidated in January. Once the capacity adjustments at KBA’s web press plants have been completed the group will have a payroll of around 6,000. A new intake of apprentices and student trainees in the autumn raised their number from 419 to 433, and the training ratio from 6.5 percent to 6.7 percent.

Outlook for 2011
Management is confident that a surge in sales of high-margin products in the fourth quarter will enable KBA to post the moderate increase in group sales (2010: €1.18bn) that was projected in the spring. Claus Bolza-Schünemann, KBA’s new president and CEO since 1 November, confirmed that the group is targeting a pre-tax profit for the third year in succession. KBA would thus be the absolute exception in a press engineering sector that is being rocked by wrenching structural change.

However, the group is unlikely to achieve the anticipated modest improvement on prior-year pre-tax earnings of €15.3m. This is because the additional charge for capacity cuts at the group’s web press plants was higher than expected, and the perceptible market slowdown has led to a reassessment of certain items in the accounts.

In view of the challenging business environment and uncertainty concerning investment in print prior to the Drupa trade fair next May, management is issuing no detailed projections for sales and earnings in 2012 until March next year.

The financial statements can be downloaded as a PDF file.

Source: KBA.