Koenig & Bauer publishes its Q1 report 2020

Revenue and earnings impacted by coronavirus pandemic

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revenue
Remote maintenance and modern communication channels are becoming increasingly important in the current environment

Koenig & Bauer was able to achieve a sound group order intake of €271.5m in the first quarter of 2020, the coronavirus pandemic, which has been spreading rapidly since January, has already had a considerable impact on revenue and earnings. With group revenue 25.3% lower than in the prior year at €172.4m, EBIT was –€34.9m. Restrictions especially in traveling initially imposed in China and then gradually in many parts of the world are having a significant impact on order and project processing for the delivery, assembly, and installation of the machines at our international customers. The effects are also being felt in the services area. At –€36.6m, group net earnings in the first quarter of 2020 translate into earnings per share of –€2.22.

Despite the significant drop in trade receivables and increased customer prepayments, substantially higher inventories as a result of pandemic-related delivery delays had a major impact on cash flows from operating activities of –€15m (2019: –€30.6m). Free cash flow improved from –€51.2m in the previous year to –€31.3m. The equity ratio stood at 32.3% at the end of March 2020.

K&B’s president and chief executive officer, Claus Bolza-Schünemann says, “The economic consequences of the corona crisis pose major challenges for our group. Our broad product portfolio with a significant share of revenue in system relevant packaging printing, the robust, increasingly digital service business, and our sound balance sheet with a high equity ratio limits the risk potential. With the corona crisis management established in March, we are working to actively counter this extraordinary situation. The health and safety of our employees, customers, and suppliers is our top priority. Our action plan focuses on reliable customer support, cost and investment discipline, and securing liquidity. Short-time working has been in place at different locations since 1 April 2020 due to capacity utilization.”

Segment performance

In the Sheetfed segment, primarily increased orders in large format as well as pleasing sales of folder gluer systems contributed to the solid order intake of €160.1m (2019: €174.2m). For reasons related to delivery and the pandemic, revenue of €68.2m was well below the prior-year figure of €113.7m. With a book-to-bill ratio of 2.35, the order backlog increased from €250.5m to €275.3m. EBIT of –€18.6m was below the prior-year figure (–€3m) as a result of the substantial drop in revenue.

Despite declining service business with web offset presses, order intake at Digital & Web of €43.6m was significantly higher than the prior-year figure of €31.9m. In addition to increased orders in flexible packaging printing, follow-up orders received in corrugated board and digital decor printing were the main reason for this growth. Mainly as a result of corona-related restrictions at the Italian subsidiary Flexotecnica, the revenue of €28.1m was lower than in the previous year (€32.4m). The order backlog decreased from €85.4m to €81.6m. The low revenue level had a significant impact on the EBIT of –€5.5m (2019: –€5.4m).

Lower orders in security, coding, and glass direct printing contributed to the decline in order intake in the Special segment from €80.4m to €73.5m. New business in metal decorating was stable compared with the prior-year quarter. Revenue decreased to €81.4m (2019: €93.6m). The order backlog at the end of March was €279.6m compared with €332.3m at the same time last year. After a segment profit of €2.1m in the prior year, EBIT of –€7.6m was reported in the first quarter of 2020.

Guidance for 2020

Koenig & Bauer’s chief financial officer, Stephen Kimmich says, “Given the uncertainty regarding future developments and the serious concern about a deep global recession, many of our customers are reluctant to make new investments, even though packaging printers for food, beverages, and pharmaceuticals as well as for online retailing are currently operating at particularly high capacity utilization. Considering the high volatility and the tremendous uncertainty about the severity and duration of the coronavirus pandemic as well as the success of health and economic policies, the impact on revenue and earnings in the 2020 financial year cannot yet be quantified. Because of the drastic effects that are already apparent, our planning for 2020 is no longer achievable. Accordingly, corona crisis management currently has the highest priority so that we can master the challenges that lie ahead and be prepared for the period after the Covid-19 pandemic. In addition to the Performance 2024 efficiency program, the strategic focus on packaging printing and digital services is to be stepped up again afterward.”

2023 promises an interesting ride for print in India

Indian Printer and Publisher founded in 1979 is the oldest B2B trade publication in the multi-platform and multi-channel IPPGroup. While the print and packaging industries have been resilient in the past 33 months since the pandemic lockdown of 25 March 2020, the commercial printing and newspaper industries have yet to recover their pre-Covid trajectory.

The fragmented commercial printing industry faces substantial challenges as does the newspaper industry. While digital short-run printing and the signage industry seem to be recovering a bit faster, ultimately their growth will also be moderated by the progress of the overall economy. On the other hand book printing exports are doing well but they too face several supply-chain and logistics challenges.

The price of publication papers including newsprint has been high in the past year while availability is diminished by several mills shutting down their publication paper and newsprint machines in the past four years. Indian paper mills are also exporting many types of paper and have raised prices for Indian printers. To some extent, this has helped in the recovery of the digital printing industry with its on-demand short-run and low-wastage paradigm.

Ultimately digital print and other digital channels will help print grow in a country where we are still far behind in our paper and print consumption and where digital is a leapfrog technology that will only increase the demand for print in the foreseeable future. For instance, there is no alternative to a rise in textbook consumption but this segment will only reach normality in the next financial year beginning on 1 April 2023.

Thus while the new normal is a moving target and many commercial printers look to diversification, we believe that our target audiences may shift and change. Like them, we will also have to adapt with agility to keep up with their business and technical information needs.

Our 2023 media kit is ready, and it is the right time to take stock and reconnect with your potential markets and customers. Print is the glue for the growth of liberal education, new industry, and an emerging economy. We seek your participation in what promises to be an interesting ride.

– Naresh Khanna

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