Koenig & Bauer publishes Q3 report 2020

Improvement of operating earnings in a challenging environment

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Koenig
Koenig & Bauer publishes Q3 report 2020

As in many industries, the Covid-19 pandemic, which is worsening again in most countries over the past few weeks, has left clear traces on the course of business in the Koenig & Bauer group. In Q3, order intake was down 13.8% at EUR 232.6m (approximately Rs 2052 crore), and revenue was down 32.2% at EUR 198.1m (approximately Rs 1748 crore) year-on-year. In addition to the effects of the pandemic, this revenue decline was materially due to the new internal revenue recognition guideline of the Koenig & Bauer AG, which caused a once-only revenue shift of EUR 52.5m (approximately Rs 463 crore) to 2021 in the sheetfed segment. In the first three quarters of 2020, new orders of EUR 712.8m (approximately Rs 6291 crore) were below the previous year’s figure of EUR 843m (approximately Rs 7440 crore) by 15.4%, although this was better than the general sector figures for printing presses published by industry association VDMA, which dropped by 26.8% in the same period. Cumulative revenue came to EUR 602.6m (approximately Rs 5318 crore) in the first nine months of 2020 (2019: €798.2m, approximately Rs 7044 crore).

At the end of September, management and supervisory board decided the performance 2024 program, which had been enhanced and expanded over the last few months, to strengthen Koenig & Bauer’s position as leading supplier in packaging, industrial, security printing, and postpress as well as to increase the group’s operating profitability. The one-off costs required for the comprehensive package of measures were expensed in Q3 by recognizing a provision of EUR 57.6m (approximately Rs 508 crore). In addition, the new revenue recognition guideline mentioned above had a negative effect of EUR 6.3m (approximately Rs 55 crore) on EBIT.

A positive effect arose from the one-off income of EUR 4.8m (approximately Rs 42 crore) from the sale of a real estate asset in Frankenthal. On balance, an EBIT of – EUR 61.3m (approximately – Rs 541 crore) is reported for Q3. However, EBIT adjusted for one-offs improved substantially from –€34.9m (approximately – Rs 308 crore) in Q1 and –€10.2m (approximately – Rs in Q2 to –€2.2m (approximately – Rs )in Q3. Despite the lower effects from short-time working compared with Q2, the adjusted EBIT almost reached the break-even threshold in Q3. In cumulative terms, EBIT for the first three quarters of 2020 came to –EUR 102.2m (approximately Rs – 902 crore) (2019: EUR 5.2m, approximately Rs 45 crore), group net earnings to –EUR 109m (approximately – Rs 962 crore) (2019: EUR 1m, approximately Rs 8 crore) and earnings per share to –EUR 6.62 (approximately – Rs 584.28) (2019: EUR 0.05, approximately Rs 4.41).

At EUR 20.8m (approximately Rs 183 crore) and EUR 26.9m (approximately Rs 237 crore), respectively, cash flows from operating activities and free cash flow were in distinctly positive territory in Q3, improving significantly over the same quarter of the previous year (– EUR 27.7m, approximately Rs 244 crore and – EUR 39m, approximately Rs 344 crore respectively). Despite a higher increase in inventories, this positive performance was underpinned by lower receivables and other assets as well as higher customer prepayments.

Segment performance

The Sheetfed segment achieved a robust order intake of EUR 128.6m (approximately Rs 1135 crore) in Q3 (Q3 2019: EUR 132m, approximately Rs 1165 crore). Despite the substantial gains with large-format sheetfed offset presses and folder gluers, order intake in the first three quarters declined by 9.9% over the previous year’s figure of EUR 462.6m (approximately Rs 4082 crore) to EUR 416.6m (approximately Rs 3676 crore) particularly as a result of lower orders for medium- and half-format presses.

The revenue shift of EUR 52.5m (approximately Rs 463 crore) to 2021 as a result of the new revenue recognition guideline was the main reason for the decline in Q3 revenue from EUR 151.1m (approximately Rs 1333 crore) to EUR 81.6m (approximately Rs 720 crore). In cumulative terms, revenue for the first nine months came to EUR 287.1m (approximately Rs 2533 crore), falling short of the previous year (EUR 410m, approximately Rs 3618 crore) by 30%. With the book-to-bill ratio coming to 1.45, order backlog rose from EUR 242.5m (approximately Rs 2140 crore) to EUR 312.9m (approximately Rs 2761 crore). The revenue effect and the provisions recognized for the Performance 2024 program resulted in EBIT of –EUR 31.7m (approximately – Rs 279 crore) in Q3 (2019: –EUR 1.5m, approximately – Rs 13 crore). At –EUR 49.1m (approximately – Rs 433 crore) in the first three quarters, it was significantly lower than the previous year’s figure of –EUR 2.8m (approximately – Rs 24 crore).

Driven by sales successes with RotaJET presses and HP machines, the Digital & Web segment achieved encouraging order intake of EUR 34.1m (approximately Rs 300 crore) in Q3 (Q3 2019: EUR 18.1m, approximately Rs 159 crore). Order intake in the first three quarters came to EUR 90.8m (approximately Rs 801 crore, down from EUR 108m (approximately Rs 953 crore) in the previous year, due to lower orders in the web offset press business and for flexible packaging printing. At EUR 36m (approximately Rs 317 crore) in Q3 and EUR 87.6m (approximately Rs 773 crore) in the first nine months, revenue was below the previous year’s figures of EUR 40.9m (approximately Rs 360 crore) and EUR 105.4m (approximately Rs 930 crore), respectively, for pandemic-related reasons. The order backlog contracted from EUR 88.4m (approximately Rs 780 crore) to EUR 69.3m (approximately Rs 611 crore) EBIT, which was primarily burdened by the provision for the Performance 2024 program, came to –EUR 9.2m (approximately – Rs 81 crore) in Q3 and – EUR 21.3m (approximately – Rs 187 crore) in the first three quarters (previous year: – EUR 4.3m, approximately – Rs 37 crore and – EUR 15.1m, approximately – Rs 133 crore, respectively).

Order intake in the Special segment of EUR 82.8m (approximately Rs 730 crore) in Q3 and EUR 233.5m (approximately Rs 2060 crore) in the first nine months was below the previous year’s figures of EUR 131.4m (approximately Rs 1159 crore) and EUR 306.7m (approximately Rs 2706 crore), respectively. The decline in order intake reflects lower orders for security printing, marking and coding as well as glass decorating. On the other hand, there was an order increase in metal decorating. Revenue of EUR 87.3m (approximately Rs 770 crore) was achieved in Q3 (2019: €107.8m, approximately Rs 951 crore). The revenue generated in the first nine months decreased to EUR 247.4m (approximately Rs 2183 crore) (2019: EUR 312.7m, approximately Rs 2759 crore). The order backlog reached EUR 273.7m (approximately Rs 2415 crore) at the end of September after EUR 339.5m (approximately Rs 2996 crore) in the previous year. EBIT came to – EUR 25.6m (approximately – Rs 225 crore) in Q3 and – EUR 35.9m (approximately – Rs 316 crore) in the first three quarters (previous year: EUR 6.6m, approximately Rs 58 crore and EUR 12.9m, approximately Rs 113 crore, respectively) chiefly as a result of the provisions recognized for the Performance 2024 program.

Outlook

President and chief executive officer Claus Bolza-Schünemann said, “In addition to boosting efficiency and scaling the group to the moderate growth expected in the next few years to group revenue of around EUR 1.3bn (approximately Rs 11473 crore) after the completion of the four-year program, it aims to strengthen our competitiveness in the long term. By continuing and accelerating all innovation processes, product and process developments, annual cost savings of over EUR 100m (approximately Rs 882 crore) should increasingly be achieved until 2024. After implementing the approved cost and structural adjustments, we are still aiming for a return on sales (based on EBIT) of at least 7% in the medium-term. In Q4 2020, the worsening international course of the Covid-19 pandemic is expected to have a negative impact on business performance. For the financial year 2020, we expect group revenue to reach a figure of between EUR 900m (approximately Rs 7943 crore) and EUR 950m (approximately Rs 8384 crore) and a negative EBIT before special items in the mid double-digit million range.“