Following preliminary disclosures in early February German press manufacturer Koenig & Bauer AG (KBA) has now published its financial statements for 2009. While the economic recession and the structural changes taking place in the print media industry have had a massive impact on press markets, compared to other players in the sector KBA's performance was impressive. Despite a 31% plunge in sales it was probably the only press manufacturer in the international premier league to post a profit in 2009 and adjust capacities to diminished market volumes without raising debt.

The rapid implementation of a radical consolidation and cost-cutting initiative enabled the group to transform an operating loss of €79.9m in 2008 into an operating profit of €8.7m. This was no mean feat considering the persistent weak demand, price erosion and poor contribution margins prevailing in the sector.

Profit on web and special presses
Although KBA's web and special press division suffered from a continued slide in demand, affecting plant utilisation levels at the group's factories in Würzburg and Frankenthal, it generated an operating profit of €31.8m (2008: €108.5m), largely from security presses and service activities.

Sheetfed consolidation on target
KBA's German and Czech production plants also ran at well below maximum capacity early in the year, and restructuring gains were not reflected in the bottom line until the second six months. As a result the sheetfed division posted an operating loss of €23.1m. However, this was much smaller than expected and substantially lower than the prior-year loss of €188.4m. A balanced result is targeted for 2010.

Solid finances and good liquidity
The KBA group posted a pre-tax profit of €2.7m (2008: €87.1m loss) and net profit after tax of €6.6m (2008: €101m loss). Earnings per share were thus 41 cents, against -€6.18 in 2008. But in view of persistent economic instability the management and supervisory boards will table a motion at the AGM to forego the payment of a dividend.

While prepayments fell, cash inflows from operating activities were relatively high (€29.6m against €34.6m in 2008) thanks to a reduction in working capital. The free cash flow improved from -€9.9m in 2008 to €4.9m. At the end of December liquid assets totalled €76.1m and bank loans €48.3m, resulting in net liquidity of €27.8m (2008: €22.6m). After eighteen months of recession these figures are well above the average for the engineering industry.

The issue of employee shares and income retention increased the corporate equity base from €411.1m the previous year to €419.8m. A big drop in inventories and trade receivables reduced the balance sheet total from €1,181.4m in 2008 to €1,060.4m. The ratio of equity to the smaller balance sheet total climbed to 39.6% (2008: 34.8%), which was also well above the industry average.

Solid finances support innovation
Credit lines totalling some €100m from private banks safeguard liquidity until March 2012. Thanks to its financial stability and fast turnaround following the loss in 2008 KBA has needed no state guarantees or loans from the German Economic Fund. The world's oldest press manufacturer is drawing on its own resources to complete its realignment to new market realities. And notwithstanding its rigorous cutbacks in expenditure, KBA again invested almost 5% of its total turnover in R&D. And as in previous years it outranked its German and foreign rivals in national and international patent statistics.

Slack demand impacts on order intake and sales
Last year there was no sign of a sustained upturn in the global print media industry, although demand did stabilise in the second six months. Group order intake dropped to €883.9m, 28.8% below the 2008 figure of €1,241.5m. At €464.6m the total volume of sheetfed orders booked was 22.4% down on the prior-year figure of €598.5m. While this was better than the industry average, slack demand for newspaper and commercial presses led to an above-average drop in new orders for big web installations. Some of KBA's niche markets – metal decorating, industrial coding and UV printing on plastic, film and data storage devices – were adversely affected by banks' reluctance to provide credit. Another, security printing, held up well and made a significant contribution to group earnings. The total volume of new orders for web and special presses shrank by 34.8% to €419.3m (2008: €643m).

Group sales, €1,050.4m, were just over two-thirds of the prior-year figure (€1,531.9m). Sheetfed sales picked up after a weak start to the year, but the final total of €478.7m was 33% down on the 2008 figure of €714.2m. Sales of web and special presses plunged by 30.1% to €571.7m (2008: €817.7m). The depth of the global market slump is reflected in the group year-end backlog of €335m (2008: €501.5m), its lowest level for over twenty years. Web and special presses accounted for €242.8m of the backlog, sheetfed presses for €92.2m.

China a solitary engine for growth
As economic output waned in Germany, KBA's domestic sales plummeted by 30.9%. However, since many export markets were even weaker, its export level remained virtually unchanged at 84.5% (2008: 84.6%). The proportion of group sales generated in Europe nosedived from 51.4% to just 36%, well below the historic average. Thanks to continuing brisk demand from China, Asia/Pacific markets were once again second only to Europe in their significance for the group, generating 22.5% of total sales compared to 17.7% in 2008. Although North America still showed no sign of a perceptible upturn, the installation of a single multi-unit web press line in New York raised the proportion of total group sales generated in this core market from 9.4% to 13.9%. Latin America and Africa contributed an above-average 12.1% (2008: 6.1%).

Adjusting capacity to smaller market
The need to adjust to a diminishing market obliged KBA to reduce the group payroll by 869 to 6,969 (2008: 7,838). Although this was largely achieved through voluntary schemes to minimise the social impact, compulsory lay-offs could not be avoided. When the market-driven realignment is completed sometime this year KBA anticipates a Group payroll of around 6,000. At the end of February it had already been trimmed to 6,703. But no compromises have been made on maintaining staff skills: as in the previous year the number of apprentices and student trainees in the KBA Group was an above-average 5.8% of the workforce.

Outlook for 2010: modest growth and profit
KBA president and CEO Helge Hansen says: "The world economy remains fragile. While productivity-boosting investment among printers no longer declined over the past few months, neither did it soar. With banks and leasing companies continuing to exercise the utmost caution, financing remains an obstacle for many firms. As a result many prospective investors have adopted a watching brief, which has impacted on new orders. While this will change as the economy rebounds, what will remain are the effects on our business of the structural transition in the media industry. Our realignment was a response to medium-term market realities, and we are delighted to have made such speedy progress in 2009 that we look set to complete the necessary consolidation within the next few months. More limited growth prospects notwithstanding, we remain committed to our core business of press technology, while expanding into other sectors offering additional revenue and development potential. We are confident that our highly trained staff, wide-ranging experience in the global marketplace and healthy finances furnish a sound basis for such a move. Initial decisions can be expected by the middle of the year. Markets permitting, and provided the current financial and economic instability produces no additional setbacks, we are targeting a modest improvement in group sales and profits for the year. A more detailed projection will be issued at a later date."