KBA reports lower sales, Web and special press sales solid
Press release from the issuing company
(November 16, 2008) Like the rest of the sector, printing press manufacturer Koenig & Bauer AG (KBA) is experiencing dramatic knock-on effects from the current financial turmoil on its export business. Following a slump in demand in key markets such as the USA, and the abrupt tightening of credit lines for customer investments, group order intake to 30 September fell 12.5% from €1,148.2m the previous year to €1,005m. The 15.8% contraction in new orders for sheetfed presses, from €581m to €489.3m, was particularly painful. It was due partly to widespread reluctance among small-scale printers to invest in new kit and partly by the postponement and even cancellation of several contracts signed at Drupa, as attempts to secure financing failed. The volume of new orders booked by the web and special press division declined by 9.1% to €515.7m from €567.2m twelve months earlier, with an increase in new contracts for newspaper presses failing to offset softer demand for security and commercial presses.
Group sales to the end of September totalled €1,075.3m, 11% below the prior-year figure of €1,208.6m. Disappointing post-Drupa business led to a 12.2% drop in sheetfed sales from €569.2m to €499.9m, while sales of web and special presses slipped 10% to €575.4m (2007: €639.4m). This was largely due to the absence of rotogravure business (sold to Cerutti in September 2007 following a steady decline in sales) and a decrease in shipments of commercial and security presses. The group order backlog stood at €721.6m, compared to €888.3m twelve months earlier. Of this, €510.2m (2007: €571.1m) was generated by web and special presses, and €211.4m (2007: €317.2m) by sheetfed presses.
In the black thanks to web and special presses
Notwithstanding narrower contribution margins, higher material and energy prices, the substantial expense associated with intermittent below-capacity plant utilisation and allowances for bad debts, KBA posted a modest operating profit of €7.9m (2007: €41.5m). This was generated solely by web and special press sales, which outweighed a double-digit loss in the sheetfed division. A financial loss of €4.3m was accompanied by a plunge in earnings before taxes (EBT) to €3.6m, from €38m a year before. KBA closed the period with a net profit of €7.8m (2007: €29.8m) and proportional earnings per share of 47 cents (2007: €1.83).
Positive cash flow, solid finances
While funds ebbed from €134m at the end of December to €123.4m, they still represented a solid financial position. Cash flows from operating activities swelled to €49.8m from €15.7m twelve months earlier. Outflows for investing activities came to €28.6m, the free cash flow €18.4m. Equity stood at a solid €514.7m, or 37.5% of the balance sheet total (31.12.2007: €515.1m and 37.7%).
At the end of September the group payroll totalled 8,003, 263 fewer than the previous year.
More domestic sales, fewer exports
Domestic sales climbed 5.4% to €169.8m (2007: €161.1m), reducing the export level from 86.7% to 84.2%. The proportion of group sales generated by the rest of Europe eased from 53.8% to 52.3%. While the shipment of big newspaper press lines to India raised the percentage contributed by Asia and the Pacific from 14.1% to 19.1%, there was a further decline in North American sales from 9.6% to 7%. The proportion of sales generated in Latin America and Africa fell from 9.2% to 5.8%.
High restructuring costs will increase loss
The inevitable outcome of a diminished order backlog was below-capacity production output at the parent company, and this continued in the fourth quarter. As a countermeasure, overtime and holiday accounts are being run down and after a ten-day closure in late October KBA’s Radebeul plant submitted an application to introduce short-time work. Other production sites may have to follow suit. Thus far, subsidiaries addressing niche markets such as metal decorating, industrial coding systems and security printing have been unaffected.
In the group’s third-quarter report KBA president and CEO Albrecht Bolza-Schünemann reaffirmed the revised sales and profit forecast issued in late September. In the current financial year (ending 31 December) the group now anticipates sales of €1.5bn (compared to €1.7bn in 2007) and a group loss due to a high one-off expense for consolidating sheetfed production plants. With exceptionally weak global demand for newspaper and commercial web presses now being succeeded by a severe decline in demand for sheetfed presses, and little likelihood of improvement in the foreseeable future, KBA management sees an urgent need to reduce capacity in its sheetfed division, having barely completed the capacity adjustment initiated at its web press plants in September 2007.
Says Albrecht Bolza-Schünemann: “With market pressures forcing a consolidation of our factories in Radebeul near Dresden (Germany), Mödling (Austria) and Dobruška (Czech Republic), we shall have to trim the existing 3,600-strong payroll by some 600 employees. Details are still being negotiated with workers’ representatives. In addition to an operating loss, excluding restructuring, of somewhere under €10m, we expect extraordinary expenses for layoffs and other remedial activities, together with inevitable valuation adjustments, to result in a pre-tax loss at the end of the year in the high double-digit millions.”
In view of the current turmoil in the international business environment, and unforeseeable developments in financial markets, Bolza-Schünemann sees any attempt to predict KBA’s path beyond 2008 as entailing too many unknown factors to be of any merit.
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