KBA: quarterly profit in a challenging year
Monday, November 16, 2009
Press release from the issuing company
While demand in the export-intensive press engineering sector has stabilised at a low level since the summer, German manufacturer Koenig & Bauer AG (KBA) sees no sign as yet of a sustained recovery. The Group order intake for the first nine months was €682.3m, 32.1% below the Drupa-enhanced figure of €1,005m for the same period the previous year. However, this was better than the plunge of 49% in the industry as a whole. After picking up strongly in April and remaining buoyant in the summer, orders for sheetfed presses came to €149.4m in the third quarter, up from €145m in the second. The total for the first nine months was €371.7m, 24% below the prior-year figure of €489.3m. The volume of new orders for web and special presses fell from €515.7m to €310.6m, a difference of 39.8%. The only bright spot was security printing.
Group sales were on schedule at €737.3m (2008: €1,075.3m). An increase in sheetfed sales in the third quarter raised the figure to €318.8m at the end of September (2008: €499.9m). Sales of web and special presses fell from €575.4m to €418.5m. A group order backlog of €446.5m on 30 September compared to €721.6m a year earlier. Web and special presses contributed €287.3m (2008: €510.2m), sheetfed €159.2m (2008: €211.4m).
Export level 83.4%: China remains an engine for growth
As a big exporter, KBA suffered the impact of economic recessions in many of its foreign markets. Nonetheless, its export level remained relatively stable at 83.4% (against 84.2% twelve months earlier). Plunging demand in Europe and the USA was partially alleviated by brisk sales in China, the Middle East, Latin America and other markets. European exports fell from 52.3% to 34.8% of total group sales. Buoyant demand in China helped boost exports to Asia and the Pacific from 19.1% to 23.5% of the group total. The figure for Africa and Latin America was well above the historic average at 17.2%, while the percentage of sales generated in the weak North American market remained obstinately low at 7.9%.
Rigorous shake-up results in pre-tax profit
The cost-cutting initiatives launched in March delivered savings of more than €80m by the end of September. Cost savings in the sheetfed division helped reduce the group operating loss to €31.1m (2008: €7.9m profit) for the nine months to October, a big improvement on the half-year figure of €42.4m.
Following pre-tax losses of €35.2m in the first quarter and €12.2m in the second, in the third quarter the KBA group posted a pre-tax profit for the first time this year of €9.6m – a favourable contrast to major competitors. For the nine months to October KBA made a pre-tax loss (EBT) of €37.8m (2008: €3.6m profit), and after deducting income taxes disclosed a group loss of €39m (2008: a profit of €7.8m). Earnings per share were also negative (–€2.38 compared to +47 cents in 2008).
Solid finances and good liquidity
Solid cash flows, good liquidity and an equity capitalisation of €373.6m all contributed to a strong Group financial profile and balance sheet. Cash flows from operating activities were positive at €9.5m (2008: €49.8m), largely due to a substantial decrease in working capital. Funds worth €76m, while down from €85.8m at the end of last year, far exceeded bank loans of €57.4m, which over the same period of time had been trimmed from €63.2m. And at 34.4% of the balance sheet total, KBA's equity level is well above the average in the press engineering industry.
Diminishing demand driving market consolidation
In the third-quarter financial report, KBA president and CEO Helge Hansen stated that the ongoing structural changes in the print media industry have created an urgent need to downsize capacity, even in the medium term, to smaller market volume. Relying solely on short-time work, which was only intended to cushion temporary fluctuations in the market, would merely preserve capacities and structures that are no longer aligned with market needs. KBA has therefore pursued a vigorous consolidation programme which has cut the group payroll by 908 to 7,095. At the end of the fourth quarter it will have fewer than 7,000 and by mid-2010 just under 6,500 employees. Most of the necessary personnel cuts have already been agreed and the rest are currently being negotiated with employee representatives.
Outlook for 2009
In his letter to shareholders and in the outlook of the third-quarter report, KBA president and CEO Helge Hansen stated that group sales are unlikely to exceed the €1.1bn mark in 2009, and will be a good 25% below the prior-year figure of €1.53bn. This isdue to an unexpectedly weak inflow of orders for multi-unit web presses.While market conditions make provisions necessary in the final quarter for a capacity reduction in the web division that is much bigger than originally planned, KBA stands by its objective of posting a balanced group result (EBT) by the end of the year. "If thefourth quarter proves disappointing and we post a negative result for the year, it will be in the low single-digit million euro range and would still represent a notable achievement compared to the performance of other players in the sector."
Hansen believes the fact that KBA is not beholden to dominant investors unfamiliar with the sector is a big advantage. "The collapse of merger talks between our two biggest German rivals has reinforced our belief that we must draw on our own resources in order to consolidate our traditional core business, press technology. Without neglecting this core activity, KBA will soon be engaging in a new field of operation with good potential for growth, earnings and employment. We believe that expanding our business scope is a wiser course of action than entering a merger in a shrinking market."
In view of the uncertainty still prevailing with regard to future economic trends, Hansen sees little point in venturing a detailed projection for 2010 until the production schedule and budget have been approved in the new year.