• Order intake above high prior-year level
• Sales up 7.7%
• Order backlog up 13.5%
• 50% improvement in EBT
• Strong cash flow and high liquidity
• Performance better than industry trend
• More economy-related risks
• Management reaffirms targets for 2011

Würzburg. Brisk business in Asia and revived demand from printers in domestic, European and Latin American markets brought orders worth a sizeable €682.9m for German press manufacturer Koenig & Bauer AG (KBA) in the six months to the end of June. Even though a number of major contracts for web and special presses were not signed until July the total surpassed the prior-year figure of €679.3m, which had been boosted by the Ipex international trade fair. There was an increase of 7.7% in sales to €509.7m (2010: €473.2m), and of 13.5% in the order backlog to €614m. KBA's performance was thus above the median trend for the sector.

Firmer sales and the cost savings delivered by the consolidation programme initiated in 2009 shrank the operating loss from €18.9m to €7.3m. The group halved its pre-tax loss to €11m. A group net loss of €14.7m (2010: –€20.3m) corresponds to earnings per share of –€0.89.

Results in the second quarter were impaired by a less profitable sales structure, pay rises, a strike at KBA's Frankenthal plant and the substantial up-front expense associated with developing new products for launching at the Drupa 2012 trade fair. Management expects a big improvement in the second half-year.

Strong finances and balance
Although inventories swelled in preparation for a larger volume of shipments, cash flows from operating activities jumped to €32.3m from –€18.1m twelve months earlier. This was sufficient to cover cash flows for investing activities and raise the free cash flow to €15.4m. Alongside ample credit lines KBA had funds totalling €104.8m at the end of June. After deducting bank loans, which fell to €40.2m, net liquidity was an impressive €64.6m and the equity ratio an above-average 39.1%.

29.6% leap in sheetfed sales
At €168.6m the volume of new orders booked for sheetfed offset presses between 1 April and 30 June was substantially larger than in the three preceding quarters. The volume of incoming orders for the full six months was up 2.1% at €310.1m (2010: €303.6m). New orders for web and special presses amounted to €372.8m and thus fell short of the prior-year figure of €375.7m. This was because some major contracts from newspaper, commercial and security printers did not appear in the books until July. A 29.6% leap in sheetfed offset sales to €258.2m contrasted with an 8.2% drop in sales of web and special presses to €251.5m, which was largely attributable to shipments being delayed by prolonged industrial action at KBA's Frankenthal plant. The backlog of unfilled orders for sheetfed offset presses at the end of June was 9.2% larger and for web and special presses 15.9% larger than twelve months earlier.

Business picks up in rest of Europe
The export level eased down to 85.3% following a 15% climb in domestic sales. 37.1% of group shipments went to the rest of Europe (2010: 29.5%). But while this was an increase on the previous year it was well below the historical average, due to the ongoing economic difficulties in southern Europe, the UK and elsewhere. Bolstered by a high volume of shipments to China, sales to Asia and the Pacific accounted for 28.4% of the group total, up from 27%. In North America, slack demand for web presses reduced the proportion of group sales generated there from 11.6% to 8.3%. 11.5% of KBA's sales were booked in Latin America and Africa.

Capacity cuts agreed at web press plants
At the end of June there were 6,371 employees on the group payroll. This was just 74 fewer than twelve months before because additional subsidiaries were consolidated in the group accounts early this year. Capacity adjustments necessitated by diminished market prospects were negotiated with employee representatives and the IG Metall trade union for KBA's web press production plants in Frankenthal, Würzburg and Trennfeld. This will result in the loss of over 500 jobs. In the medium term the group workforce will fall below 6,000.

Prognosis for 2011 confirmed
In the half-year report KBA president and CEO Helge Hansen stated that the group's realignment to market realities is well advanced. Although there are still a number of tasks outstanding, and the economic environment has become less stable, management stands by its targets for the current year of a single-digit increase in group sales and a modest lift in pre-tax profits compared to 2009 and 2010. This is provided, however, that the existing turbulence in financial markets does not impact on the global economy and investment in the print media sector more severely than anticipated, based on current knowledge.

In addition to the ongoing personnel adjustments at its web press plants KBA is splitting its Frankenthal facility into two independent companies which will be open to external investors and customers. Along with a new digital business line the main plant in Würzburg will take over some responsibilities relating to sheetfed offset and special presses from the group's Austrian subsidiary, KBA-Mödling, which is operating at the limits of its capacity.

The financial statements can be downloaded as a PDF file from http://www.kba.com/en/investor/berichte/11.html