Disclosing the first-quarter figures for German press manufacturer Koenig & Bauer AG (KBA), president and CEO Claus Bolza-Schünemann gave an upbeat preliminary assessment of the group's performance at Drupa, the definitive trade fair for the print media industry, which closes on 16 May. The high level of attendance on the KBA stand and the keen interest expressed in the raft of new product launches exceeded all expectations, which given the current economic issues in some key foreign markets were modest. With customers coming from some 30 countries around the world, KBA booked a string of orders for sheetfed offset presses in all the formats offered, and also booked some web press orders from printers in Germany and elsewhere.

Bolza-Schünemann described the total value of the orders placed in Düsseldorf as highly satisfactory, but was unwilling to give specific figures because in many cases the financing has not been finalised, particularly where leasing agreements are being negotiated. He said: “We have signed a lot of contracts with both existing and new customers. But it will be weeks, or even months, before all the financing has been clarified, customer prepayments have been received and we and other exhibitors can assess our true performance at Drupa 2012.”

Good start to the year with a pre-tax profit
CFO Dr Axel Kaufmann reported a divergence in key figures during the first quarter. While group sales climbed by 4% to €263.5m, the group order intake of €236.6m was well below the record level of €432.1m twelve months earlier, which had been boosted by major contracts for special presses. Fluctuations of this kind are not uncommon in the plant engineering industry, and can distort the picture. Bucking the industry trend, the backlog of unfilled orders swelled by 28.9% to €798.8m at the end of March.

Typically for this sector, first-quarter sales were below target. Even so, the KBA group transformed an operating loss of €1.8m the year before into an operating profit of €2m. Following a financial loss of €1.8m it posted a pre-tax profit (EBT) of €0.2m (2011: a loss of €3.9m). A group net loss of €0.8m (2011: €5.8m loss) corresponds to earnings per share of -€0.05 (2011: -€0.35).

Sheetfed sales rise in pre-Drupa quarter
Despite a certain reluctance among printers to invest in new kit ahead of the Drupa trade fair, the influx of new orders for sheetfed offset presses rose by 8.1% to €152.9m (2011: €141.5m). This was partly attributable to a pre-Drupa event at KBA's Radebeul operation in March, which drew over 1,000 print professionals. Following a fourth-quarter dip in demand last year and some late orders that had not yet worked through to the bottom line, sales of sheetfed offset presses fell by 19.9% to €100.9m (2011: €126m).

Higher sales of web and special presses
An absence of the major contracts that had pushed up the prior-year figure sent the volume of new orders for web and special presses plunging by 70% from €290.6m to €83.7m. Sales, however, soared 27.7% to €162.6m (2011: €127.3m). At the end of March the order books showed an increase of 12.8% in contracts for sheetfed offset and of 35.4% for web and special presses.

Export level approaches 90%
A slide of around 17% in domestic sales raised the export level to 89.2%. Sales to the rest of Europe were well below the historic average following persistent weak demand in southern Europe, the UK and much of eastern Europe. The volume of group sales attributable to Asia and the Pacific climbed from 24.3% to 30%, with China playing a major role. North American sales contributed 8.2% of the group total. The proportion of group sales generated in Africa and Latin America soared from 14.5% to 25.4%.

Bigger inventories for imminent shipments shrink cash flows
Despite a perceptible drop in trade receivables, the bigger inventories required for shipments in subsequent quarters sent cash flows from operating activities plunging to -€23.1m, well below the prior-year figure of €40.1m which had been bolstered in part by high customer prepayments. A scheduled post-Drupa increase in shipments will reduce inventories and improve the cash flow. The free cash flow was also negative (-€30m compared to €36.3m twelve months before). Funds came to €119m at the end of March, up from €145.6m at the end of December 2011. After deducting bank loans totalling €36.1m net liquidity stood at €82.9m, and KBA has access to ample credit lines. At the end of the quarter equity was worth a good 38.6% of the balance sheet total.

Payroll falls below 6,000 following adjustments
At the end of March there were 6,294 employees on the group payroll. Excluding staff at a newly consolidated Swiss subsidiary, Print Assist AG, this was 124 fewer than twelve months earlier (6,404). Following the conclusion of all the adjustments initiated in recent years the total will fall below 6,000 (including 340 apprentices).

Management reaffirms forecast for 2012
Given the group's strong performance at Drupa, which exceeded expectations, KBA management reaffirmed its projected targets for 2012 of an increase in sales to over €1.2bn and higher pre-tax earnings compared to 2011 (€3.3m). These projections are based on the sizeable order backlog, which includes a large proportion of high-margin products, and on an anticipated business stimulus from Drupa in the second and third quarters. Given the unsettled market climate management is unwilling to offer a more detailed prognosis until the summer, when the figures for the trade fair will have been finalised and post-Drupa business can be assessed more accurately.

Claus Bolza-Schünemann is confident that a sound financial base and healthy balance sheet, a uniquely diverse portfolio and innovative products enjoying a high level of market acceptance will enable the group to consolidate its standing as the world's second-largest press vendor. He said: “We'll continue to exploit the strategic options offered by consolidation in the sector. We have already introduced measures to strengthen our international sales and service network in markets where we see growth potential for KBA. We are also vigorously pursuing our strategic goal of expanding our product range for the key Chinese market by acquiring a stake in a domestic manufacturer.”

The first-quarter report can be downloaded as a PDF file from http://www.kba.com/en/investor-relations/financial-reports/reports-2012.html