Half-year Report for Koenig & Bauer (KBA)

After the first six months of 2014, earnings of the Koenig & Bauer Group (KBA) were up significantly from the first quarter and 2013. Following a 3.1% rise in group sales to €517.8m year-on-year, group pre-tax earnings (EBT) were almost balanced after the first half-year at –€0.1m due to a pre-tax profit of €12m in the second quarter of 2014. The world’s second-largest press manufacturer still posted EBT of –€12.1m after the first three months, and a pre-tax loss of –€8.8m in 2013.
 
The management board stated previous initiatives and the higher-margin product mix as reasons for this considerable improvement in earnings.
 
KBA president and CEO Claus Bolza-Schünemann expects the first cost reductions resulting from Fit@All already in the second half of the year. This program for group realignment to a shrunken and fundamentally changed press market has been in place since the beginning of 2014. He refers to the strain placed on the manufacturing sector and KBA’s important export business by the unforeseeable impacts of the crisis in the Ukraine, sanctions against Russia and other conflicts.
 
Nevertheless, he stands by his goal published in spring of group sales of €1 billion to €1.1 billion, assuming that no major turmoil occurs. The management board also expects the significant improvement to earnings compared to 2013 to continue in the second half of this year.
 
Weak growth and currencies in key threshold countries, and the unstable political environment acted as a brake on international demand for sheetfed offset presses in the second quarter of 2014 (1)
 
Operating profit in both business divisions came in at –€3.4 million after tax deductions in the first half of 2014 (2013: –€10.6 million) and earnings per share of –€0.20 (previous year: –€0.64). Both business divisions generated an operating profit in the first six months of 2014. Sales of sheetfed offset presses were up 4.3% on last year’s figure to €257.4 million and this segment posted an operating profit of €1.5 million (previous year: –€9.4 million) given cost savings and better margins. At €2.3 million operating profit with web and special presses was below the prior-year figure (€4.5 million) also due to special expenses associated with restructuring.
 
Cash flows from operating activities was negative at –€33.7 million, resulting from a reduction in trade payables, lower customer prepayments and an outflow for the ongoing staff cuts following Fit@All.
 
According to recent statistics issued by the VDMA (German Machinery and Plant Manufacturer’s Association) orders for printing presses in the second quarter were down 16.2% on the previous year given weak growth and currencies in important threshold countries and the unstable political environment. KBA bucked this trend thanks to its broad product spectrum with a 2.6% increase in group order intake to €456 million. The total volume of incoming orders in the web and special press segment rose by 10.7% to €166.9 million. This was triggered by more orders for banknote presses and coding technology, the new subsidiaries KBA-Flexotecnica and KBA-Kammann active in the special packaging sector and expansion of the service business. At €289.1 million, new orders for sheetfed offset presses were 1.6% lower than the prior-year figure owing to the reasons mentioned above.
 
A 13% decrease in domestic sales year-on-year pushed the export level to 83.4% (2013: 80.3%). Deliveries to Europe (not including Germany) rose from €129.8 million the year before to €209.4 million. This historic KBA core market gained ground again with 40.4% of group sales compared to 2013 (25.8%).
 
Sales attributable to the growth region Asia and the Pacific increased slightly from €122.5 million to €125.7 million, with this region’s contribution remaining more or less stable at 24.3%. In North America, the slump in business with newspaper presses led to a decline in sales to €52 million, or 12.6% to 10% of the total. Revenue in Africa and Latin America came to €44.7 million and 8.7% of group sales.
 
The implementation of Fit@All has been a top priority since the beginning of this year. In recent months the company has made progress with the planned reduction in capacity of 1,100 to 1,500 staff at production sites in Germany and abroad as well as with the bundling of similar production islands at just one site. Cancellation agreements and phased retirement schemes, or collective wage agreements and social compensation plans were agreed with more than 700 employees. At the end of June 2014, the number of employees on group payroll stood at 6,110 compared to 6,158 12 months earlier.
 
Excluding the newly consolidated subsidiaries KBA-Kammann and KBA-Flexotecnica, and not including apprentices, trainees, temporary employees and staff on phased retirement schemes, the total fell by 242 to 5,189. It will fall to well below 5,000 by the end of the year. Many of the employees listed on group payroll have already left the company.
 
“The KBA Group will not grow this year,” said Bolza-Schünemann. “The newly consolidated business fields of flexible packaging and glass direct decoration will compensate at least in part for the loss in revenue of our web offset press business. High provisions for the restructuring expenses associated with Fit@All and impairments were already included in the group earnings in 2013. This year we expect the special expenses that impact on earnings to be limited. In contrast, cost savings from the measures implemented as part of Fit@All will be noticeable with positive effects in the fourth quarter of 2014 and to a greater extent in 2015. The management board is targeting a balanced pre-tax result (EBT) for 2014.”