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KBA moves back into the black, Sales up 17.2%, New orders up 25.9%

Press release from the issuing company

Würzburg. Third-quarter figures for German press manufacturer Koenig & Bauer AG (KBA) showed a 25.9% increase in group order intake to €1,309.9m (2004: €1,040.1m). Group sales totalled €1,107.3m, 17.2% above the prior-year figure of €944.5m, and the order backlog was 15% higher, at €1,095.6m. As a result KBA has moved back into the black for the first time this year, with a pre-tax profit (EBT) of €10.1m. Its operating profit of €17.3m is a big improvement on the figure of €1.2m for the first six months. Net profit was €5.2m, equivalent to net earnings per share of 32 cents. Management reaffirmed the projected sales target of €1.5bn for 2005 and a higher pre-tax profit than last year’s €15.9m. Higher prices for raw materials and energy were more than balanced by a larger volume of shipments, healthier profit margins on goods shipped, and the cost savings achieved by restructuring web press production plants and negotiating more flexible working hours. Inventories swelled in preparation for a substantial increase in turnover in the fourth quarter. Cash flows from operating activities also swelled, to €76.5m (2004: -€10.3m). This was mainly due to higher earnings, a smaller volume of accounts receivable and higher advance payments. The free cash flow improved to €58.2m (2004: -€45.9m). Funds rose by €12.1m to €58.2m. The consolidation of two subsidiaries, Bauer+Kunzi in Germany (55 employees) and KBA-Grafitec in the Czech Republic (429 employees), increased the group payroll to 7,866 at the end of the third quarter, 506 more than at the same time the previous year (7,360). Excluding these additions the total staff count rose by 22. While the number of employees at KBA’s web press facilities in Germany fell by 132, its sheetfed facility took on an extra 122 to support organic growth. Dynamic growth by sheetfed and web press divisions Both divisions posted dynamic growth rates, despite intense competition in the market for multi-unit web presses, and the fact that sheetfed earnings were hit by the cost of establishing a broad range of new products on the market, by higher material and energy costs, and by continuing downward pressure on the prices of new presses, which also affected sales of second-hand machinery. New orders for sheetfed offset presses were up 15.8% at €661.8m (2004: €571.6m), with gains in virtually every market worldwide. Sales jumped 21% to €561.4m, from €464m the previous year, largely driven by the medium- and superlarge-format presses launched at the Drupa international trade fair in 2004. The €400.2m order backlog was 9% higher than at the same time last year and will keep KBA’s production plant near Dresden busy for the next six months. Brisk demand for commercial and security presses as well as newspaper presses drove the volume of new orders for web and special presses up by 38.3% to €648.1m, from €468.5m in 2004, while increased shipments boosted sales by 13.6% to €545.9m (2004: €480.5m). The order backlog grew by 18.8% to €695.4m, safeguarding production until well into the coming year. Domestic demand picks up Domestic demand also picked up, enabling KBA to post a 46.9% jump in sales to €219.4m. As a result the proportion of exports eased back to 80.2% (2004: 84.2%), though they remained the prime engine of growth. Sales increased in all major markets. The rest of Europe defended its lead with 45.8% of total sales, followed by Asia and the Pacific (14.3%) and North America (13.9%). Combined sales to Africa and Latin America came to 6.2% of the total. Intense competition despite brisk demand International demand for printing presses has stabilised at a high level, and the weakening of the euro has substantially enhanced the competitiveness of German exporters in dollar-denominated markets. Nonetheless, the pricing pressures that have emerged over the past five years remain an ongoing issue. Some of the few globally active manufacturers expanded capacity during the upturn and have since increased this further through efficiency gains or new investment. These have now been joined in the marketplace by new competitors from emerging economies like China and India, who are using price to boost sales of technologically less sophisticated products. It is therefore safe to assume that competition will only intensify. KBA responded with cost-cutting measures, the acquisition of profitable niche specialists, expansion into less volatile markets like packaging and security printing, and an extensive upgrade of a product range that is already the broadest and most advanced in the industry. Management is therefore confident that the group is well positioned to maintain long-term growth in a fiercely competitive global arena.