First half-year report for Koenig & Bauer

In the second quarter of 2015 Koenig & Bauer (KBA) came significantly closer to achieving its target of positive results in all business segments. In the first six months the printing press manufacturer was able to greatly increase its order intake with a plus of 33.2 percent year-on-year to €607.5m. At €597.9m group order backlog on 30 June was around 43 percent higher than at the beginning of the year. In contrast, at €426.9m sales at the mid-year mark were below the previous year (€517.8m) and thus proportionally behind the group’s annual target of over €1bn. The disproportionate distribution of sales to the second half-year was previously announced by the management board. Although KBA’s cost base has been substantially reduced by Fit@All, the lag in sales impacted on earnings. President and CEO Claus Bolza-Schünemann, ‘Group profit before taxes of €6.9m in the second quarter led to an improvement in our EBT from –€17.7m after three months to –€10.8m mid-year. We are particularly pleased with the major improvements in earnings in Sheetfed and Digital & Web. Despite this half-time shortfall, with catching-up in mind we continue to target an EBT margin of up to 2 percent of sales for 2015.’ Notwithstanding redundancy payments of over €15m as part of personnel adjustments, cash flows from operating activities increased from –€33.7m the previous year to –€28.9m. This was mainly due to reduced receivables and a rise in customer prepayments. Although inventories rose in preparation for the upcoming sales catch-up in the third and fourth quarter, KBA was able to reduce working capital by around €100m in the last twelve months. The free cash flow improved greatly to –€25.2m following –€43m the year before. Funds at the end of June 2015 stood at €191.6m. The Sheetfed Solutions segment was particularly successful in the first half of 2015 with order intake up 40.3 percent on the previous year to €368.1m. This was predominantly a result of strong demand from the packaging sector. Sales in KBA’s sheetfed segment were up 1.8 percent to €239m year-on-year and are expected to increase more strongly in the second-half of this year. Order backlog mid-year came in at €310.6m, the highest figure since 2007. Progress made with regard to costs and prices led to a massive earnings improvement from a segment loss of €8.4m in 2014 to a profit of €3.8m. The KBA management board anticipates a further significant earnings increase in the course of the year. New contracts for digital and newspaper presses drove order intake in the Digital & Web Solutions segment up from €45.6m in 2014 to €69.2m. Given low order backlog at the start of the year, at €36.7m revenue remained significantly below the previous year’s figure of €71.3m. In contrast, order backlog of €83.4m at the end of the second quarter stood well above the corresponding figure from 2014. The segment posted a loss of €8.9m for the first half-year. With a segment loss of €0.2m in the second quarter the turnaround was almost achieved due to the improved order situation and capacity utilisation. Earnings are expected to improve gradually in the following quarters triggered by higher sales and more effective savings. Along with growing success in the relatively young field of flexible packaging, more orders for metal-decorating, security printing and coding systems boosted the total volume of incoming orders in the Special Solutions segment by 21 percent to €199m. At €169.9m sales were distinctly lower than the previous year that benefitted from large security press orders. KBA anticipates a significant rise in revenue in the third and fourth quarter in particular. Order backlog stood at €224.5m at the mid-year mark. Given the lower margin product mix compared to the first half-year 2014, segment profit fell to €3.6m compared to the prior-year figure of €33.9m. The export level climbed to 84.9 percent after six months. At 29.7 percent the proportion of deliveries to other parts of Europe was significantly down on last year’s figure. In contrast, business in North America which was up from 10 percent to 16.6 percent was boosted by market success with sheetfed offset and flexo presses. The proportion attributable to sales market Asia and the Pacific also rose from 24.3 percent to 29.3 percent. Latin America and Africa generated 9.3 percent of group sales. At the end of June 2015 there were 5266 employees on the KBA group payroll, 844 fewer than twelve months earlier. Excluding apprentices, trainees, employees exempted from their duties and staff on phased retirement schemes the group workforce sank to 4599. As previously mentioned, this total is expected to fall to around 4500 at the end of 2015. With a training rate of 6.3 percent securing the next generation of skilled workers remains a high priority. The economic and political environment for the export-driven engineering industry remains volatile. Nevertheless, the KBA group kicks off the second half-year with considerably fuller order books and capacities than in 2014. Completing the raft of existing orders on time poses a substantial challenge. This is especially true of KBA’s Sheetfed Solutions business unit which is operating at a very high level of capacity utilisation and contributes to around half of group sales. As demand remains strong in this segment special measures have been introduced to increase production output. In the first half-year capacities at KBA-Digital & Web in Würzburg have been sustainably adjusted to the severely shrunken web offset market. Higher order intake for digital and conventional web presses currently contributes to the segment’s sound level of capacity utilisation. KBA expects the turnaround in quarterly results also for this segment in the course of the year. The companies consolidated in the Special Solutions segment will have to considerably increase output in the second half-year in order to achieve their sales and earnings targets. According to the group’s CEO and president, greater transparency and market focus expected from the group realignment with the parent as a holding and new operating business units is already noticeable. He is therefore, confident that KBA will be able to deploy the capital available in an even more targeted manner in future. The product mix to be delivered in the second half-year will be more profitable than in the first. Overall, the management board continues to target an EBT margin of up to 2 percent of sales. The implementation of the Fit@All restructuring programme will be completed by the end of 2015. KBA management currently does not expect any impacts on earnings from upcoming measures beyond the provisions made.