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KBA: Further Consolidation to Maintain Growth

Press release from the issuing company

Würzburg. At the 86th Koenig & Bauer AG (KBA) annual general meeting at the Vogel Convention Center in Würzburg, president and CEO Helge Hansen reported a substantial increase in new orders for sheetfed and special presses in the first five months of the year compared to the same period last year. However, big web presses for printing newspapers, magazines, catalogues and other print media that compete with online services for both readers and ad revenues are a major cause of concern, with global demand well below pre-crisis levels. Even so, preliminary figures to 1 June for the world's no. 2 press manufacturer reveal a leap of 21% in new orders to around €600m and 27% in sales to €420m-plus. The order backlog on 31 May totalled €617m, 40% above the prior-year level. This is largely attributable to KBA's broad product portfolio. Hansen anticipates a similar improvement in the group's half-year performance.

KBA on course despite strike in Frankenthal
Typically for the engineering sector, sales in the first five months fell short of annual targets. But despite delays in web press shipments caused by a six-week strike at KBA's Frankenthal plant, management stands by its objective for 2011 of a single-digit percentage increase in group sales over the previous year (€1.18bn), and a moderate improvement in earnings. More detailed information will not be available until the half-year report is issued in August. A skeleton agreement on ending the strike was signed the day before the AGM and a ballot will be held on whether work should resume on Monday, 20 June.

Given the sober market prospects for web presses, Hansen sees no alternative but to trim the payroll at KBA's Frankenthal, Würzburg and Trennfeld plants by a further 700 in order to restore competitiveness and profitability in a much-diminished market. Following protracted negotiations with employee representatives and IG Metall in Frankenthal, talks have now started at the other two locations. The measures proposed will reduce the group workforce from 6,377 at the end of May this year (90 fewer than twelve months earlier) to well below 6,000 at the end of 2013.

Mergers would have destroyed more jobs
In his speech Hansen discussed global shifts in media markets, technological advances and structural transitions within the printing industry. He made it clear that the post-slump capacity adjustments initiated by the top three press manufacturers in 2009, in the course of which over 9,000 jobs were lost, were not prompted by a lack of vision or co-operation at board level. He said: "The merger scenarios mooted would have led to more redundancies and closures, a loss of productivity through staff tensions, and the costs that these entail. With industry players working to capacity until 2007, the charge of failing to diversify sooner can only be levelled by those who have no idea how hard it is to change horses in midstream."

Diversifying beyond print
However, Hansen conceded that classic press manufacturers must redefine their objectives. Over the past ten years Koenig & Bauer has addressed profitable niche markets through acquisitions, reducing its dependence on volume markets such as commercial web and newspaper offset which are under mounting pressure. The group's non-print-specific business lines with good potential for growth include air purification and industrial coding systems. A further step towards realising medium-term growth objectives is the licensing agreement announced on 1 March relating to digital print. This will enable KBA to expand rapidly in the inkjet sector by building and distributing new digital press models based on proven technology. Nonetheless, diversification remains on the board's agenda.

Dividend for 2010
Shareholders acknowledged KBA's achievement in being the only major press manufacturer to come through the economic crisis financed solely by its operating activities, with no recourse to a new share issue. A modest pre-tax profit in 2009 was increased last year to €15.3m. So following a two-year hiatus KBA is paying a dividend of 30 cents per share from a net group profit of €12.5m.

Detailed figures for the first half-year will be published on 12 August.


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