3/29/07 -- Substantially higher earnings than in the previous year was the good news announced by Albrecht Bolza-Schünemann, president and CEO of Koenig & Bauer AG (KBA), at a press conference on 29 March at Stürtz in Würzburg. The venue, at a major user of KBA sheetfed and web presses in the city where KBA is headquartered, was chosen to give analysts and trade journalists an insight into the production routine of a 400-employee mid-cap media house whose scientific and educational textbooks and database services address an international market. Group sales climbed 7.5% to €1,741.9m (2005: €1,621m), the highest level in KBA’s 189-year history. While a total of €1,649.7m for new bookings represented a double-digit improvement on 2004, which had been boosted by the Drupa trade fair, it was 6.7% down on the record figure for 2005 of €1,768.9m. Bolza-Schünemann attributed this to the smaller number of major newspaper and gravure contracts put up for tender. An increase in shipments trimmed the order backlog to €948.7m at the end of the year, from €1,040.9m in 2005. Earnings per share jump from €1.14 to €2.11 A high level of capacity utilisation at KBA’s production plants and efficiency gains from restructuring the web press division enabled the group to boost operating profit from €33.3m in 2005 to €46.2m. While the financial profit was no more than modest, pre-tax earnings (EBT) soared to €47.4m (2005: €25.8m), net group profit to €34.3m (2005: €18.5m). Earnings per share thus came to €2.11 (2005: €1.14). Although the export level of 82.7% was marginally higher than in 2005 (81.9%), group profitability in the fiercely competitive global press market was hit by the weakness of the Japanese yen, the US dollar and the Swiss franc against the euro, by higher steel and energy prices and by an increase in unit labour costs, which together wiped out some of the cost savings and productivity gains made. In view of the higher earnings, at the AGM on 19 June in Würzburg management and the supervisory board will propose a dividend of 50 cents per share, up from 40 cents in 2005. €8.2m of the parent’s net profit of €16.1m (2005: €6.5m) will be paid out as dividends, €7.9m reinvested. Rise in sales of sheetfed and web presses KBA’s sheetfed offset division lifted sales by 6.5% to €870.6m (2005: €817.6m) just under half of the group total. KBA-Grafitec, a Czech subsidiary acquired in 2005, posted double-digit sales growth with its small-format presses. The volume of incoming orders, including those booked by KBA-MetalPrint, a new subsidiary consolidated in the second half of the year, came to €864.3m, 4.2% up on the previous year (€829.5m). But despite a raft of cost-cutting initiatives, earnings by the sheetfed division were below target at €5m (2005: €2.7m). Margins were hit by price erosion in press markets and the cost of optimising new products. As in 2005, the web and special press division, which includes systems built by subsidiaries KBA-GIORI, KBA-Mödling and KBA-Metronic, made the bigger contribution to group profit with earnings of €41.2m (2005: €30.6m) on sales of €871.3m, 8.5% above the prior-year figure of €803.4m. However, the volume of new bookings shrank to €785.4m (2005: €939.4m), primarily due to a dearth of contracts up for tender in the newspaper press market and softer sales of gravure presses following heavy investment in recent years. Asia and the Pacific overtake North America Once again, the rest of Europe was KBA’s biggest market, taking 49.3% of group sales (2005: 44.3%). Germany accounted for 17.3%, down from 18.1% the previous year. Asia and the Pacific moved up into third place in the regional sales statistics, with 16.4% of the group total (2005: 15.5%). A drop in shipments of web presses meant that just 12% of group sales went to North America (2005:15.9%), though sheetfed business thrived. The figure for Africa and Latin America, where volumes are generally smaller, was 5% (2005: 6.2%). However, there was a welcome lift in demand for sheetfed presses in Egypt and other North African markets. New subsidiary KBA MetalPrint swells payroll At the end of 2006 there were 8,296 employees on the Group payroll (2005: 7,962), with KBA-MetalPrint in Stuttgart accounting for 293, the rest of the Group for just 41 of the additional 334. Once again KBA’s training level was above the industry average for an enterprise of this size, with a total of 461 (2005: 487) apprentices and student trainees representing 5.6% of the workforce. As ever, further training for technical staff and executives was a key focus. Higher investment in plant, buildings, research and development In 2006 KBA invested €52.5m (2005: €37.2m) in property, plant and equipment with the aim of boosting productivity and product quality. Pure research and development costs came to €63.6m (2005: €55.2m). Including new customer-specific developments some 6% of turnover was devoted to R&D. Further improvement in liquidity 2006 saw a big increase in cash and cash equivalents to €145.8m (2005: €116m). Cash inflows of €90m (2005: €174.6m) from operating activities financed investments and generated a free cash flow of €37.8m (2005: €147.2m). At the same time current and non-current liabilities sank from €947.1m to €917.9m and KBA’s net financial position strengthened from €50.3m to €75.2m. With the balance sheet total roughly the same as in 2005, the return on equity eased up to 34.2% from the prior year’s 32.1%. As sales climbed, active receivables management enabled trade receivables to be trimmed from €465.6m to €399.8m. Outlook for 2007 The volume of sheetfed orders on hand at the beginning of the year, and contracts placed since then, will keep the relevant production plants busy until well into the third quarter, while the backlog of orders for web presses swelled in January and February with contracts from Italy, Spain, the UK and USA for newspaper and commercial presses, and a further decorative gravure printing press. Even so, capacity utilisation at KBA’s web press production plants will fluctuate, especially in the second half of the year. Some projects were delayed by customers, indicating that some major contracts may be expected in the second quarter. The subsidiaries specialising in niche applications look set to maintain their profitable growth and will help balance volatile demand for big web presses. Despite softer sales of multi-unit web presses, KBA management is confident that group sales and pre-tax earnings will be roughly on a par with 2006. However, in view of the uncertainties relating to wage negotiations and currency movements Mr Bolza-Schünemann will not be issuing a more detailed prognosis until a later date, when interim figures are available.