KBA's 2010 net profit up 89% year-over-year to €12.5M, as sales rose 12.3% to €1.18B, new orders jumped 45.4%, order backlog grew 31.6%
March 25, 2011
– * Pre-tax profit €15.3m, free cash flow €20.4m
* Group sales up 12.3% at €1,179.1m
* New orders jump by 45.4%, order backlog by 31.6%
* 39.6% equity ratio and no net debts
* Dividend of 30 cents per share proposed
* Target for 2011: moderate growth in sales and earnings
German printing-press manufacturer Koenig & Bauer AG (KBA), which announced in early March that it is expanding its product range to address the high-potential digital print market, has issued its group financial statements for 2010. In an international market environment shaped by dramatic shifts in media consumption, weak regional investment and fierce competition, KBA’s orders, sales and earnings need shun no comparison with the rest of the sector.
Broad product base attracts big influx of new orders
Brisker demand following a revival in the spring drove the group order intake up to €1,284.9m, a 45.4% improvement on the crisis-shaken previous year. Orders for sheetfed offset presses jumped 33.8% to €621.6m, while those for web and special presses soared 58.2% to €663.3m. The group order backlog at the end of December was up 31.6% at €440.8m. The above-average growth rates for the world’s second-biggest press manufacturer were partly attributable to its broad product range, which addresses both volume markets such as commercial, packaging and newspaper printing, and less volatile niche markets such as metal decorating, coding and security printing.
Demand for sheetfed and special presses greater than for web
Group sales climbed 12.3% to €1,179.1m (2009: €1,050.4m) following a substantial two-year decline triggered by the economic slump and structural changes in the market. Sales of sheetfed offset presses came to €551.1m, 15.1% above the prior-year figure. Even though the web and special press division started the year with a much smaller backlog of unfilled orders, and competition from online media impacted on demand for big newspaper presses, it posted a 9.8% increase in sales to €628m. Demand for multi-unit web presses picked up in the second half-year but remained well below pre-crisis levels. Most of the orders booked for newspaper presses, where KBA is the market leader, came from Germany and elsewhere in Europe.
Operating profit more than doubled
In KBA’s core markets – sheetfed, commercial web offset and newspaper printing – persistent excess capacity on the supply side continues to weigh heavily on prices. Nonetheless, a double-digit jump in revenue, and the cost savings delivered by consolidation, enabled KBA to more than double its operating profit from €8.7m to €22.2m, with both divisions posting a positive operating result.
Benefiting from firmer sales and the reduced cost base accruing from restructuring measures, the sheetfed division converted a €23.1m operating loss the previous year into an €8.2m profit. Provided global economic growth in 2011 is not seriously impaired by current developments, KBA is confident that the higher order backlog at the start of the year and initial brisk demand will enable it to maintain this upward trajectory in sales and profits. The decline in operating profit generated by web and special presses, from €31.8m in 2009 to €14m, reflected more acutely than in the previous year the plunge in demand for web presses: the backlog of orders from better years, which helped sustain figures in 2008 and 2009, was no longer there to cushion the impact of unsatisfactory profit margins in a buyers’ market and the poor level of capacity utilisation at the production plants concerned.
30 cent dividend and €12.5m net income
KBA posted a financial loss of €6.9m (2009: a loss of €6m), but boosted group pre-tax profit from €2.7m in 2009 to €15.3m. Net profit of €12.5m was also well above the prior-year figure of €6.6m and equates to earnings per share of 76 cents. Following a two-year hiatus in dividend payments the management and supervisory boards will table a motion at the AGM on 16 June in Würzburg proposing a dividend of 30 cents per share for the 2010 business year.
Solid finances create room for innovation
Cash flows from operating activities of €30.1m were roughly on a par with the previous year (€29.6m), while the free cash flow surged from €4.9m in 2009 to €20.4m. With liquid assets totalling €91m and bank loans reduced from €48.3m to €43.1m, KBA’s net financial position, at €47.9m, was much stronger than the year before (€27.8m). Unlike many other players in this sector KBA has weathered the economic crisis, media transitions and a cost-intensive realignment to a smaller market volume without drawing on external financing or injections of capital. A net profit for the year, foreign currency translations and the issue of employee shares raised equity at the end of last year by €41.5m to €461.3m. An above-average equity ratio of 39.6% relative to a €100m higher balance sheet total underscores the solid financial structure of the world’s oldest press manufacturer. The company has access to additional cash credit lines for more than €100m from banks.
In the print media industry KBA is considered an engine of innovation and technological advances. Cost-cutting initiatives notwithstanding, last year investment in research and development exceeded 4% of total group sales. At the end of the year the Wall Street Journal’s Patent Scorecard™ for heavy industrial equipment in the USA ranked KBA 24th among the top 50.
Export level nudges 90% – Asia and the Pacific overtake Europe
Although domestic sales started to revive, KBA’s export level hit a historic high of 88.5% (2009: 84.5%). But with economies in southern Europe and other parts of the EU continuing to struggle, the proportion of group sales generated in Europe (excluding Germany) dropped to 28.5%, well below the historic average of 50%-plus. For the first time in KBA’s 194-year history, sales to the rest of Europe, traditionally the group’s biggest market, were surpassed by sales to Asia and the Pacific, which accounted for 29.4% of the total. Brisk demand in China for sheetfed presses was a major contributory factor. This shift in demand towards the Far East is seen throughout the German engineering industry. Despite a perceptible lift in sales of batch-produced presses in North America, slack demand for newspaper web presses caused the proportion of the Group total generated in this region to slide from 13.9% to 10%. However, sales to the threshold markets of Latin America and Africa soared, pushing up the regional total from 12.1% in 2009 to 20.6%.
Market-driven payroll adjustments
At the end of the year the Group workforce totalled 6,419, down 550 from the same time the previous year and 1,700 fewer than before the crisis. The payroll cuts necessitated by diminishing market and sales volumes were implemented in a socially responsible manner to minimise the impact on employees. When consolidation is complete the group payroll will be approximately 25% smaller than before. Even so, the group continues to invest heavily in staff training and qualifications. The training ratio rose from 5.8% in 2009 to 6.5%.
Prospects for 2011: moderate growth in sales and earnings
Assessing the prospects for 2011, KBA chief executive Helge Hansen noted that the recent events in North Africa and Japan, the unresolved debt crisis in Europe, soaring prices for energy and raw materials and inflationary pressures in China have raised the level of risk to which exporters are exposed. Nonetheless he is confident that the upturn in Group sales and earnings over the past two years can be maintained in 2011. He said: “Last year’s growth rates were high partly because they followed exceptionally poor prior-year figures, and are therefore unlikely to be repeated on this scale. For 2011 we are targeting a moderate increase in sales and earnings, with both divisions contributing their share.” In view of current market volatility, management is reserving further details for the first-quarter report in mid-May.