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KBA Q3 '07 report: weak demand yet higher profits

Friday, November 16, 2007

Press release from the issuing company

November 15, 2007 -- German press manufacturer Koenig & Bauer AG, KBA closed the third quarter with group sales of €1,208.6m, from €1,205.5m twelve months earlier. In the web and special press division, whose contribution of €639.4m approached the prior-year figure of €642.5m, increased shipments of special presses largely compensated for a dip in sales of big gravure and newspaper web presses. The sheetfed division posted a 1.1% rise to €569.2m (2006: €563m).
Soft demand for new presses in the summer months caused a 7.9% drop in incoming orders to €1,148.2m (2006: €1,246.6m), though a higher volume of new contracts for special presses and customer services helped offset weak demand for multi-unit press lines. As a result the inflow of orders for web and special presses, at €567.2m, was not far short of the previous year’s level (€582.2m). However, the strength of the euro impaired the competitiveness of German exporters in comparison to Japanese and other non-EU rivals. On top of this, high import duties acted as a brake on sales of sheetfed presses to high-growth markets such as China and India. KBA’s sheetfed division failed to match last year’s outstanding third-quarter performance, posting a 12.6% slide in new orders to €581m (2006: €664.4m). Nonetheless, judging by projects recently negotiated, KBA is confident that orders will pick up and stabilise at a normal level. 
The group order backlog shrank to €888.3m (2006: €1,082m), but was slightly larger than at the end of the second quarter. The volume of unfilled orders for sheetfed presses stood at €317.2m (2006: €413.1m), which will keep KBA’s sheetfed plants in Radebeul and Dobruška (Czech Republic) busy until well into the coming year. Capacity utilisation at the group’s niche subsidiaries is also high. However, the backlog of orders for web and special presses fell from €668.9m to €571.1m. The longer lead times associated with web presses resulted in an intermittent under-utilisation of KBA’s web press capacities in Würzburg, Trennfeld and Frankenthal in the third quarter, and this continued in the fourth. KBA has therefore brought more production in-house, expanded flexitime and terminated temporary contracts in the departments concerned. At the end of September management announced that the sale of KBA’s gravure operation to Italian competitor Cerutti, and a projected decline in the market volume of big web presses, will result in further capacity cutbacks at the group’s web press facilities. Details are currently being negotiated with employees’ representatives.
Pre-tax yield 3.1%
Operating profit jumped to €41.5m from €30.1m, with the web and special press division making the biggest contribution. Pre-tax earnings of €38m were around 25% higher than twelve months earlier (€30,4m). Group profit and earnings per share improved accordingly, to €29.8m (2006: €22.4m) and €1.83 (2006: €1.38) respectively. Cash flows from operating activities came to €15.7m, well below the prior-year figure of €93.9m. Funds totalled €140.5m, down from €154m at the end of last year.
At 30 September KBA’s employed a total of 8,266 staff, 41 fewer than at the same time last year.
Export level rises to 86.7%
A dip in domestic deliveries of web presses pushed the export level up from 82.5% to 86.7%. Once again, the biggest export market for KBA presses was the rest of Europe, which generated 53.8% of total sales, followed by Asia and the Pacific (14.1%), North America (9.6%) and Latin America with Africa (9.2%).
Management reaffirms prognosis for 2007
President and CEO Albrecht Bolza-Schünemann reaffirmed management’s prognosis for 2007 of group sales in the region of €1.7bn. “Provision has already been made for the additional costs associated with capacity adjustments at our web press plants necessitated by the sale of our gravure activities and the lower volumes anticipated in the newspaper market over the next few years. Notwithstanding unfavourable exchange rates, higher wages and spiralling prices for raw materials, we anticipate pre-tax earnings of a similar magnitude to last year, €47.4m.”
In view of the present volatility in the currency, energy, commodities and sales markets, KBA is unwilling to make any detailed projections for 2008 until the annual report is published in March. But going by past form, the Drupa international print media trade fair scheduled for late May/early June is expected to reinvigorate demand, particularly for batch-produced presses.




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