Krones Annual Report 2018 – Continued Revenue and Growth

2019-04-01 Joe Bucks

Krones continued growth of revenue in 2018 with improved free cash flow

Krones, the world’s largest supplier of filling and packaging technology, continued to grow in 2018 despite the challenging industry and market conditions.

Krones is a full-range supplier of machines, production lines and other products for the beverage industry and the packaging industry. The company based in Germany is operating globally. As such, it benefited from its broad product, machine and service spectrum as well as its strong international presence.

Key figures of the annual Krones Report 2018 are:

Preliminary figures generally confirmed.
Increase of revenue by 4.4% to total €3.85 billion.
Increase of order entry by 4.5% to total €3.96 billion.
EBT margin reduced at 5.3%
(mainly caused by higher material and labour costs and reorganisation expenses).
Free cash flow improvement.
Stable dividend forecast in relation to 2017 with a
dividend of €1.70 per share for 2018.
Targeted growth in revenue of 3% revenue for 2019.
EBT margin expected to raise to about 6% in 2019.

The details about some of these figures are quite interesting…

Krones: key supplier of the filling and packaging industry – insights on the annual report

Krones improves free cash flow

Between October and December 2018, Krones significantly reduced its working capital. This had a positive effect on the free cash flow. It improved significantly in 2018 from 271.4 million euros to 201.7 million euros (preceding year: -150.7 million euros).

Over the last four quarters, the average working capital ratio has slightly exceeded expectations, remaining stable at 27.3% in 2018. Net liquidity reached 215.1 million euros at the time of publication of the 2018 financial statements (previous year: 157.4 million euros).

Due to the increased balance sheet total, the company’s equity ratio fell slightly to 43.2% (previous year: 43.8%). Overall, Krones still has a very strong financial and capital foundation.

Profitability burdened by cost increases and one-off expenses

Krones’ earnings in 2018 were negatively impacted above all by reorganization expenses. But also due to higher material costs, higher prices for steel and stainless steel, and higher costs for wages and labour in general.

The EBT margin of 5.3% includes some €42 million in one-off expenses, mainly for reorganizations and the construction of the new manufacturing facilities in Hungary.

Without these expenses in 2018, the EBT margin would have been 6.4%. The largest share of this was attributable to costs for the construction and expansion of the new production site in Hungary. At € 204.3 million (EBT margin: 5.3%), earnings before taxes (EBT) in 2018 were 21.1% or € 54.5 million below the previous year’s figure.

High expenses for reorganization and investments in Hungary

Earnings declined in both business segments. In the core segment of mechanical engineering and plant construction for the beverage industry, EBT of € 223.3 million was 15.2% below the previous year’s figure of € 263.3 million. Reorganization expenses burdened the segment result by around € 25 million.

In the segment of mechanical and plant engineering for process technology for beverage production, the EBT dropped dramatically from -4.5 million € in the previous year to -19.0 million € in 2018. This was mainly due to one-off expenses totaling around € 17 million.

Krones growth target for 2018 achieved

With the figures now confirmed, the Krones revenue increased by 4.4%. This is from Euro 3,691.4 million to Euro 3,854.0 million. Which really is not bad at all. The company thus achieved it’s target of 4% revenue growth as announced in autumn 2018.

The operational revenue at the same time increased as well. Taking necessary adjustments for acquisitions and currency effects into account, the growth in comparison to 2017 had been about 5%.

It has to be said however, that the average revenue decreased in some regions, mainly North and Central America, Asia-Pacific and in Middle-East and Africa.

Nevertheless, the revenue gains of Krones in other regions had been sufficient to not only compensate these figures. In some cases these had been quite significant, such as in China, Europe and South America as well as Mexico.

Total order intake increased once again in 2018

According to the report, the total order intake of Krones increased by another 4.5% in 2018. This is quite remarkable, since this figure compares to 2017, which has already seen a strong increase in orders. In total order intake values this is €3,786.8 million in 2017 to €3,957.3 million in 2018.

It goes without saying, that this strengthens the position of Krones as clear market leader in it’s core business fields packaging and filling.

Most orders had been received from Western and Eastern Europe, which had been particularly strong this year and from China. And to add to this success, at the end of the year 2018 Krones had already order announcements on hand totaling 1,261.1 million Euro. Which is by itself a surplus of 1.7% compared to the end of 2017.

Growth of workforce and increased global footprint

Besides and connected to the investment in the new Krones production plant in Hungary, the company heavily invested in the enlargement of it’s global workforce. At the end of 2018, Krones had an impressive total of 16,545 people employed globally.

This is 1,246 employees more than in 2017. About a third, namely around 400 of them, had entered the company due to various acquisitions.

Krones shareholders dividend remains stable

With the published figures above, the preliminary annual preview published in February 2019 now has been officially confirmed.

For the 5th of June 2019, the Supervisory Board and the Executive Board of Krones have announced to propose a dividend per share of Euro 1.70 for the financial year 2018. This means that the shareholder dividend will remain stable in comparison to the previous year. Which is quite attractive. The payout planned is 35.7% of the consolidated net income.

What is next? Investments and Outlook to 2019

Even so the year 2019 is still young at time of this writing, packaging industry insiders are now eager to have a preview into 2019 results and developments. Based on the prevailing macroeconomic outlook, Krones says they are expecting a consolidated increase in revenue of about 3% in 2019.

This is one percent less than 2018, however 2019 is currently not expected to be upon the strongest years in the history of the filling and packaging industry. At the same time, prices for material such as steel or machine components and labour are not expected to drop at any significant rate within this year.

In addition to this, the achievements and investments of Krones to get prepared for the future have not ended in 2018. Therefore Krones will continue on investments in it’s global structure and restructuration efforts. Other future investments will be targeting the modernisation of production machines, further development of Industry 4.x and other technical innovations.

Positive forecast 2019 despite challenging market environment

To not endanger the set target in revenue growth, Krones will be trying to moderately increase prices within 2019. However, this may sound more easy than done.

The fight and struggle of all market participants, mainly Krones, KHS and Sidel, to win orders within the difficult environment of the packaging, filling and beverage industry is constantly high. So increasing prices can be expected to be a challenging target. Nevertheless, Krones is expecting an overall EBT margin of 6% in 2019.

The third target the machine manufacturer has set himself for 2019, is the working capital to revenue, which is currently planned to be at about 26%.

Even Krones Headquarters in Neutraubling (Germany) admits, that achieving these goals will not be easy. Which is also due to the growing uncertainties within the global geopolitical climate, in comparison to recent years. However, Krones officials say they are confident that the self-set goals are still achievable.

> Click here to download the official Krones Annual Report 2018.

Topic: Krones Annual Report 2018. Growth in revenue and order intake despite challenging market environment. Krones forecast for 2019. Filling and packaging industry supplier.