KBA reports strong orders and cash flow for first nine months of 2018

Driven by a strong security press business and overall growth in packaging printing markets, order intake for Germany-based Koenig & Bauer Group (KBA) rose by 4.4% over the previous year to €943.2 million in the first nine months of 2018. At the end of Q3, order backlog was up 25.5% at €769.3 million. Group revenue came to €788.8 million but fell short of the previous year’s figure of €847.7 million due, said the OEM, to the even greater accumulation of delivery dates requested by its customers in Q4 as well as bottlenecks in parts availability. This was also reflected in EBIT, which at €28.6 million was lower than 2017’s €36.4m.

Claus Bolza-Schünemann.

Segment performance. While the project situation is good, order intake, revenue and EBIT in the sheetfed segment were affected in particular by bottlenecks in the availability of parts. “The situation with respect to parts and the high order backlog dampened our new business due to longer delivery times. We’re currently working intensely on optimizing our entire supply chain to achieve a sustained reduction in delivery times,” said KBA President and CEO Claus Bolza-Schünemann. Despite the growth in flexible packaging printing, KBA order intake for digital and web was up only slightly on the previous year’s figure due to fewer orders for newspaper and digital printing presses. Together with market-entry and growth-related expenses for corrugated board and flexible packaging, the lower revenue exerted pressure on EBIT in this segment. Despite substantially higher orders, revenue in this special segment was slightly below the previous year’s figure. However, the EBIT margin remained stable in this segment.

Financial and balance sheet strengthened. Cash flows from operating activities rose substantially over the previous year to €50.5 million. Although free cash flow was burdened by the final payment installment of €34.8m made in Q1 for the external funding of a part of its pension provisions, it also improved substantially. In addition to net liquidity of €74.3m and securities of €15.7m that can be liquidated at any time, the group also has access to syndicated credit facilities.

Mathias Dähn.

Group targets for 2018. Referring to the targets for 2018, CFO Mathias Dähn added: “The numerous press deliveries and service activities scheduled in the final months of the year will trigger a surge in revenue and earnings in Q4. In view of this business concentration, which is challenging due to the high capacity utilization and the parts situation, but not really unusual, we aim to achieve organic growth of around 4% in group revenue for 2018. As things currently stand, we cannot rule out a shift of around €35 million in revenue into 2019 as a result of delivery delays caused by bottlenecks in parts availability. In terms of our earnings target for 2018, we’re confident that we’ll achieve an EBIT margin of around 7% for the full year with higher revenue in view of the EBIT margin of 6.6% in the third quarter with low revenue. Global macroeconomic risks have increased due to trade conflicts and barriers, rising U.S. interest rates and political uncertainties in Europe (i.e. Brexit and Italy) and in the emerging markets,” he pointed out.

Medium-term goals until 2021. Depending on trends in the global economy, end markets and the necessary investments in growth, KBA management is targeting a group-wide organic revenue growth rate of around 4% p.a. and an EBIT margin of between 4% and 9% by 2021. The effects of the additional growth offensive 2023 which the management board presented in conjunction with the announcement of the Q3 figures, are not included in the medium-term targets (neither revenue nor costs).

Additional growth offensive to 2023. Describing in greater detail the additional growth offensive 2023, Dähn added: “For stronger profitable growth, we want to actively exploit the currently available market opportunities in corrugated board printing, flexible packaging and two-piece can decorating alongside our service initiatives. The same thing applies to marking & coding and post-press equipment such as rotary and flatbed die-cutters. Based on an addressed total market volume of currently around €2bn p.a. for machines, these business fields are expanding at annual rates of between 2% and 10% – as they’re benefiting from growth in consumer spending and demand for packaging around the world, as well as long-term trends such as e-commerce, more sophisticated packaging and smaller sizes due to more single-person households. With newly developed products such as CorruCUT, CorruFLEX and CorruJET for corrugated board printing, CS MetalCan for two-piece can decorating, and the Rapida RDC 106 rotary die-cutter, we want to stand out from the competition with improved total cost of ownership, shorter make-ready times for ever more frequent job changes, greater ease of operation, and high production output. The same thing also applies to our new and enhanced products for flexible packaging printing, flatbed die-cutters and marking & coding.

Complex customer surveys and analysis always form the basis for our decisions. Our growth offensive to 2023 necessitates additional experts and specialists in our global service and sales network, as well as targeted portfolio additions based on platform concepts. We estimate the cumulative market-entry, growth-related and R&D expenses for 2019 to 2021 at around €50 million. By 2023, we want to gradually generate additional revenue of around €200 million in these addressed business areas. Given this favourable market environment with structural and above-average growth, as well as less cyclical end markets such as food, beverages and pharmaceuticals, we want to gradually increase the EBIT margin from additional business to a double-digit figure, he added.”

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Tony Curcio is the editor of Graphic Arts Magazine.