Following preliminary disclosures in early March, German press manufacturer Koenig & Bauer AG (KBA) has now published its financial statements for 2011. Notwithstanding the challenges arising from ongoing structural changes in the print media market the KBA group met all its capital requirements from a healthy operating cash flow of €83.9m, scaled back bank debts still further and boosted liquid assets. The 195-year old enterprise bucked the industry trend and was unique among major global press manufacturers in disclosing a post-recession profit for the third year in succession.

Thriving business in special presses
Brisk demand for security, metal-decorating and coding equipment helped swell the group order intake to €1,552.1m - its highest level since the record year of 2006 and 20.8% up on 2010 (€1,284.9m). The backlog of unfilled orders almost doubled from €440.8m to €825.7m. But at €1,167.2m group sales were marginally below the prior-year figure of €1,179.1m due to shipping delays and weak demand for sheetfed and web offset presses in the second half-year.

Patchy performance
Flagging investment activities in the final four months led to an 8.3% drop in new sheetfed contracts to €569.9m. Brisk demand for niche products, however, sent the intake of new orders for web and special presses soaring by 48.1% to €982.2m. Although the two divisions each posted sales worth €583.6m, this represented an improvement of 5.9% over the prior year in sheetfed sales, but a slide of 7.1% in sales of web and special presses following shipping delays.

Rising costs and investment impact on operating result
The rising cost of raw materials, heavy investment in new products, wage increases, unscheduled structural expenses and lower sales following external delays in deliveries until the current year reduced the group operating profit from €22.2m in 2010 to €9.9m. But despite unsatisfactory market pricing and fluctuating levels of plant utilisation, KBA's web and special press division posted a profit of €28m (2010: €14m), with niche and service activities playing a major role. In the sheetfed division, price erosion and the high up-front expense associated with developing new products put paid to any operating profit, even though restructuring measures delivered substantial cost savings. The division therefore made an operating loss of €18.1m following a profit of €8.2m the year before.

Pre- and post-tax profit
A group pre-tax profit of €3.3m and annual net income of €0.4m fell well short of the corresponding figures for the previous year of €15.3m and €12.5m. Earnings per share were just 2 cents (2010: 76 cents). In view of this unsatisfactory performance, and the current challenging business environment, the management and supervisory boards plan to dispense with a dividend for 2011.

Solid finances and a strong cash flow
Despite bigger inventories, cash flows from operating activities surged to €83.9m (2010: €30.1m) following a jump in customer prepayments and a drop in trade receivables. This covered higher outflows for investing activities and boosted the free cash flow to €57.8m. Liquid assets soared to €145.6m while bank loans were trimmed to €35.9m, giving a net financial position of €109.7m at the end of the December, over twice the figure for 2010 (€47.9m). A comfortable level of liquidity and access to adequate credit lines document KBA's solid financial profile, as does the high ratio of equity to the bigger balance sheet total, which in 2011 was 38.2%.

Trademark innovation
Whilst implementing rigorous cost-cutting initiatives, KBA has not economised at the expense of innovation, and the proportion of R&D to total group sales was again around 5%. According to the Patent Scorecard™ for Heavy Industrial Equipment, published in the Wall Street Journal in January this year, KBA has moved up from 21st to 11th position among the top 50 international players, ahead of all other major German press manufacturers. As an acknowledged driver of technological advances the group will be launching an array of new products and processes at the Drupa trade fair in May, among them a web-fed inkjet press for the high-growth digital print market.

More shipments to Europe
A 34.3% rise in domestic sales trimmed the export level from 88.5% to 84.4%. The proportion of group sales generated in the rest of Europe climbed from 28.5% to 35.6%, with higher sales of both sheetfed and web presses contributing to the increase. Despite a gain in sheetfed orders, the proportion of the group total attributable to North America plunged to the exceptionally low level of 8.6%. While the anti-inflationary monetary policy pursued in China put a temporary curb on sheetfed sales, the contribution from Asia and the Pacific remained high at 27.4%. The 12.8% generated in Latin America and Africa was nearer its historical average than the prior-year figure of 20.6%.

Consolidated payroll below 6,000
At the end of 2011 there were 6,408 permanent employees (including 428 apprentices) on the KBA payroll. Excluding the newly consolidated subsidiaries there would have been 71 fewer. Once all downsizing measures have been completed the KBA group in its present composition will have well below 6,000 employees. However, to maintain the high standard of qualifications necessary for such a technologically sophisticated line of business KBA invests a higher than average percentage of earnings in training. Last year 6.7% of the workforce was in training, compared to 6.5% in 2010.

Outlook for 2012: moderate growth and a higher profit
Looking ahead, KBA management emphasised the higher risks that exporters face from slowing growth in major emerging markets, the high oil price and ongoing debt crisis in Europe. While the Drupa trade fair is expected to stimulate sales, and management is confident that a raft of new products will boost the order intake, particularly in the sheetfed offset division, there will be no return to the high volumes of previous years. If market conditions remain stable KBA is targeting a single-digit percentage increase in sales and a higher pre-tax profit.

President and CEO Claus Bolza-Schünemann said: “We are working at full stretch to boost our performance on a sustainable basis and defend our position as the world's no. 2 press vendor through innovation, process optimisation and strategic market decisions. We are also busy stepping up our activities in the packaging sector and broadening our commitment beyond sales and service in China, a major growth market. As well as driving growth by upgrading, streamlining and expanding our product palette, we are beginning to reap the benefits of the capacity adjustments we have made and the initiatives we have introduced to trim manufacturing costs. There is good reason to hope that, in the medium term, ongoing consolidation in the sector will help to eliminate overcapacity among suppliers and lead to more disciplined pricing in the marketplace. KBA is a solidly financed press manufacturer with a technologically advanced and uniquely diverse portfolio for a range of applications. So we are well poised to emerge with confidence from the current wave of industry consolidation.”

However, given the challenging business environment, fundamental shifts in print media markets and changes on the supply side, KBA management is unwilling to make more detailed projections until the Drupa trade fair has taken place and the half-year figures are in.

The financial statements can be downloaded as a PDF file from http://www.kba.com/en/investor-relations/financial-reports/reports-2011/.