Germany: Krones has to tighten its belt

Krones,  the world's leading manufacturer of filling and packaging technology, presented last Wednesday the figures for the 2018 financial year and the first quarter of 2019 at the company’s annual general meeting in Neutraubling, Germany.

According to CFO Michael Andersen, Krones attained its growth target in 2018 and increased revenue by 4.4% year-on-year to EUR 3.85 billion. Due to one-off expenses, mainly for reorganisation, earnings before taxes (EBT) went down by 21.1% to €204.3 million. In total, one-off expenses came to approximately EUR 42 million. Costs of measures in connection with establishing the production site in Hungary account for the largest share of this amount. The EBT margin was 5.3% in 2018. Excluding one-off expenses, the EBT margin for 2018 was 6.4%.

Krones continued to grow in first quarter of 2019. There was nevertheless already a noticeable change in the product mix by the end of the first quarter. Uncertainty due to the general debate surrounding plastics and PET meant that customers were hesitant to place orders for plastics machinery. This development was made up for with orders for cans and glass bottles.

From January to March, revenue gained 10.3% to EUR 983.5 million. Adjusted for acquisitions and currency effects, growth was 5.9%. High material and labor costs impacted profitability. Earnings before taxes (EBT) went down in the first quarter of 2019 by 8.4% to EUR 51.5 million.

In 2019, Krones plans to continue its profitable growth. The slowdown in the global economy and the numerous geopolitical and macroeconomic risks – which have become even more serious in recent months – have resulted in a deterioration of the general operating environment.

One of Krones’ strengths, however, is the ability to deal with challenges and take suitable action in response. The basic focus remains on increasing profitability and competitiveness. In the short term, in addition to the measures already initiated, Krones has imposed a recruitment freeze since the beginning of the year in Germany. The company has significantly reduced workforce expansion worldwide. Krones has also further intensified the focus on cutting material costs in order to counteract the recent cost trend this year. Reducing complexity, agile response to market needs and a customer-centric organization also play a central role.

The company expects revenue to increase by 3% in 2019. The EBT margin is expected to be around 6%. For its third performance target, working capital to revenue, Krones expects a figure of 26%.

CEO Christoph Klenk also informed shareholders about the opportunities and challenges of Krones’ strategic orientation. The company’s business is currently affected by many different general economic and geopolitical uncertainties. Krones is responding to these with a corresponding strategy, which Klenk explained. Central to the strategy, alongside innovation across all product areas, is expansion of the company’s global footprint. Despite the international expansion, Germany remains by far Krones’ most important location.

Shareholders are being paid out a dividend of €1.70 per share for the 2018 financial year. The dividend thus remains stable.

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