Business News
High restructuring charge impacts on earnings
Thursday 30. April 2009 - 2008 financial statements for Koenig & Bauer AG (KBA)
Sales of batch-produced presses hit by financial crisis
Web and special presses exert stabilising influence
Pre-restructuring operating profit of 13.4m
Provisions swell pre-tax loss to 87.1m
Equity ratio of 34.8% still well above average
Outlook: fewer sales, improved result
German press manufacturer Koenig & Bauer AG (KBA) published its 2008 financial statements on 30 April following preliminary disclosures on 26 March.
The global economic downturn had a disproportionately severe impact on the inflow of orders for batch-produced sheetfed presses, which plunged 22.6% to 598.5m (2007: 773.5m). The web and special press division, where multi-unit installations with lengthy production times dominate the schedule, exerted a stabilising influence, with new orders totalling 643m (16.9% below the prior-year figure of 773.4m). Group orders therefore shrank 19.7% to 1,241.5m (2007: 1,546.9m). Weak demand resulted in a 16.7% drop in sheetfed sales to 714.2m (2007: 856.9m), and their contribution to group sales consequently fell from 50.3% to 46.6%. With sales of web and special presses relatively steady at 817.7m (2007: 846.8m), group sales sank 10.1% to 1,531.9m (2007: 1,703.7m). The drop in the volume of orders on hand was much greater, from 791.9m to just 501.5m at years end.
Provisions top 90m
The impact on profits of a 170m slide in sales was exacerbated by provisions and write-downs totalling 93.3m, primarily relating to the approved restructuring and consolidation of sheetfed facilities. This gave rise to an operating loss of 79.9m, as opposed to an operating profit of 65.7m in 2007.
A higher service turnover and solid earnings in niche markets less affected by the recession pushed up the profit generated by the web and special press division from a healthy 63.1m in 2007 to 108.5m. This contrasted with a heavy loss of 188.4m (2007: 2.6m profit) in the sheetfed division due to capacity underutilisation and substantial one-off expenses in preparation for the proposed realignment. The outcome was a financial loss of 7.2m, pre-tax earnings of -87.1m (2007: 63.2m profit) and a group loss of 101m (2007: 49m profit). Net earnings per share came to -6.18 (2007: 3.00). At the AGM on 18 June the management and supervisory boards will therefore table a motion to dispense with a dividend.
Export ratio dips to 84.6%
The slide in domestic sales – by 6.3% from 251.4m to 235.5m – was less marked than in other parts of the world, largely thanks to buoyant sales of sheetfed presses. Deliveries to the rest of Europe accounted for 51.4% (2007: 52.2%) of total group sales, while the shipment of several large newspaper press lines to India boosted the proportion of group sales generated in Asia and the Pacific from 14.7% to 17.7%. However, US printers continued reluctance to invest in new kit reduced the volume of North American sales to 9.4%. Latin America and Africa together contributed 6.1% of the group total.
Around 400 employees fewer than in previous year
Capacity adjustments to diminished global demand trimmed the group payroll by 398 to 7,838 (2007: 8,236), with more cuts to come. The training ratio of 5.8% was slightly higher, reflecting KBAs continuing focus on staff competence and skills. A large proportion of the 49.8m invested in property, plant and equipment (2007: 48.4m) related to rationalisation measures.
Higher cash flow, solid finances
Cash flows from operating activities swelled from 21.3m to 34.6m, primarily due to higher provisions and a reduction in receivables and inventories. The KBA groups cash flow is materially influenced by the customer prepayments commonly made in the heavy plant sector, which despite softer sales in the second half-year came to 140.5m (2007: 199.3m). The free cash flow improved from -17.1m in 2007 to -9.9m. At the end of December liquid assets stood at 85.8m (31.12.2007: 123.2m). With bank loans down 20.3m at 63.2m, the groups net financial position remained strong at 22.6m. Additional credit lines totalling 160m have been extended by domestic banks. Although the net loss reduced total equity from 515.1m to 411.1m, an equity ratio of 34.8% (2007: 37.7%) reveals a solid capital base.
Prospects for 2009
In view of weak global demand, unfavourable economic indicators in the ad-dependent printing industry and a drop of more than 36% in the group order backlog, KBA expects sales to be some 20% lower than in 2008. Management is hopeful that the timely implementation of the restructuring measures, which will mainly focus on sheetfed activities, will rapidly bring capacities and costs in line with the smaller global market anticipated in the medium term. The group payroll will be reduced to around 7,000 by the end of the year.
Since provision was made in last years accounts for the necessary personnel cuts, write-downs and other remedial action, KBA is targeting a balanced pre-tax result (EBT) for 2009, provided global demand does not deteriorate any further. Given the present economic turbulence, tighter credit in the real economy and investors loss of confidence, management sees little sense in attempting more detailed projections at this moment in time.