Business News
Higher profits on lower sales
Monday 31. March 2008 - Financial statements for Koenig & Bauer AG (KBA)
Sales narrowly miss prior-year record
New orders hit by US downturn
Pre-tax earnings up one-third at 63.2m
Proposed dividend 20% higher at 60 cents
Projections hampered by strong euro and financial crisis
In 2007 Koenig & Bauer AG (KBA) posted group sales worth 1,703.7m, not far off the previous year’s record figure of 1,741.9m. But at 1,546.9m the volume of new orders was 6.2% lower (2006: 1,649.7m) following the economic downturn in the US, weaker demand for big press lines and a slump in demand for gravure presses. The order backlog shrank accordingly to 791.9m, from 948.7m a year earlier.
Earnings per share climb to 3
But the impact of higher material and labour costs, and provisions for capacity adjustments at web press production plants, was more than offset by systematic cost reductions and improved margins on goods shipped. As a result operating profit jumped from 46.2m in 2006 to 65.7m. Pre-tax earnings (EBT) soared to 63.2m (2006: 47.4m) and group profit climbed to 49m (2006: 34.3m), though there was a modest financial loss. Earnings per share rose to 3 (2006: 2.11).
The parent’s retained earnings, which determine dividend payments to shareholders, fell to 10.8m (2006: 16.1m). Nonetheless, at the annual shareholders’ meeting in Würzburg on 19 June the management and supervisory boards will propose paying out 9.8m – equivalent to a dividend of 60 cents (2006: 50 cents).
Lull in sheetfed growth
The sheetfed division posted sales worth 856.9m, 1.6% down on the 2006 figure of 870.6m. Once again, medium-format presses were the most popular models. At 773.5m, the volume of new orders was 10.5% below the prior-figure of 864.3m, largely as a result of the subprime crisis in the USA and the high-flying euro, which gave Japanese competitors a significant advantage. Net earnings, at 1.6m, were also lower than twelve months earlier (5m) and well short of management objectives.
Higher earnings on web and special presses
The web and special press division contributed 846.8m (2006: 871.3m), or 49.7% of total sales. While new contracts worth 773.4m were not far off the relatively weak prior-year figure of 785.4m, and orders for commercial and newspaper presses were higher than in 2006, demand for gravure presses was almost non-existent, and for security presses below the record figure for 2006. As in previous years, web and special presses made the bigger contribution to Group profit, with earnings of 64.1m (2006: 41.2m).
High export level of 85.2%
The export level climbed from 82.7% to 85.2% following a drop in the number of big press installations in Germany. Widespread economic stability in the rest of Europe helped make this KBA’s biggest export market, generating 52.2% of group sales. The domestic market accounted for 14.8% of deliveries, followed by Asia and the Pacific (14.7%), North America (10.5%) and Latin America and Africa (7.8%).
Smaller payroll, major investments
At the end of the year there were 8,236 staff on the Group payroll, 60 fewer than in 2006. While the number of employees fell by around 200 at KBA’s web press production plants following capacity adjustments and the closure of a factory in the US, the workforce in its sheetfed division increased. A training ratio of 5.6% reflected KBA’s historic focus on staff skills.
Research and development activity at KBA in 2007 was as vigorous as ever, and with new customer-specific developments consumed around 6% of turnover. Excluding such developments R&D costs came to 61.7m (2006: 63.6m). Investment in property, plant and equipment totalled 48.4m (2006: 52.5m).
A higher working capital and smaller volume of customer down payments reduced cash inflows from operating activities to 21.3m (2006: 90m), while the free cash flow plunged from 37.8m the year before to -17.1m. The group’s net financial position – the difference between funds and bank loans – remained strong at 50.5m (2006: 75.2m). The sound capital structure is reflected in shareholders’ equity, which stood at 515.1m (2006: 476.3m), and an equity ratio of 37.7%, up from 34.2%.
Outlook for 2008: more clarity after Drupa
In common with its German competitors KBA posted a year-on-year decline in the total volume of orders on hand, with sheetfed contracts experiencing the biggest slide. However, management is confident that demand will be stimulated by an open house at its sheetfed facility in Radebeul in early April and by the Drupa international trade fair that opens in Düsseldorf at the end of May. So notwithstanding the impact on US and global economies of the weak dollar and stock-market turbulence, there is reason to believe that capacity utilisation at its sheetfed plants will stabilise in the third and fourth quarter.
Plant utilisation at the group’s web press factories, which at times was unsatisfactorily low in 2007, is now safeguarded until late summer by some major contracts booked at the turn of the year. But with the global market volume of newspaper press sales steadily shrinking, and following the sale of its rotogravure business, KBA stands by its decision to adjust capacity at its Frankenthal, Trennfeld and Würzburg facilities.
President and CEO Albrecht Bolza-Schünemann says: “Provided the global economy remains on a relatively steady footing, we anticipate group sales for 2008 of around 1.6 billion and group earnings before taxes (EBT) on a par with 2007. But in view of the current scenario and the associated risks, we are unable to make more precise projections at this point in time. When Drupa closes its doors in June we shall have a clearer idea of developments in key overseas markets, the investment climate in our industry and our prospects for the rest of the year and beyond.”