As the market leader, Krones is in an excellent position to benefit from industry growth
Krones operates worldwide, delivering leading technologies for filling and packaging, process engineering, and intralogistics as well as IT solutions for the food and beverage industries.
In its core business area, bottling and packaging equipment, Krones is by far the world’s market leader. Besides the two major European competitors, KHS (a subsidiary of the Salzgitter Group) and Tetra-Pak subsidiary Sidel, there are also many smaller competitors.
In the process technology segment, Krones offers products for breweries and producers of soft drinks, milk and dairy drinks, and water (SDW). We are the world’s second-largest supplier of brewing technology. Krones’ market position is not quite as strong in SDW process technology. We aim to achieve better than average growth in this attractive market in the years ahead.
Krones has been expanding its intralogistics operations considerably since 2016. The acquisition of the Italian company System Logistics has made Krones an important player in the market for internal logistics for the food and beverage industry. As a result, Krones is now well represented for all stages of value creation in beverage production and able to deliver everything from a single source.
Since Krones knows all of the processes involved in beverage production and bottling down to the smallest details, the company is in an excellent position to be part of the increasing digitalisation of beverage production. By intelligently connecting data, we are developing solutions that give our customers clear, comprehensive added value. We have bundled our digitalisation and IT expertise in Syskron.
Many long-term global trends are supporting Krones’ growth. Steady global population growth, the rapid expansion of a consumption-driven middle class in the emerging markets, and urbanisation all serve to increase demand for packaged beverages. The digitalisation of the beverage and packaging industry also presents further growth opportunities for Krones.
Increasing urbanisation, the migration of people from rural areas to the cities, is promoting demand for packaged food and beverages. That is because city-dwellers generally tend to consume more packaged products.
In Africa and Asia, most of the population still lives in the countryside. However, more and more people there will crowd into the cities in the years and decades ahead.
Growth of the middle class
More and more people in the emerging and developing countries are escaping poverty and rising into the middle class. The United Nations forecasts that the middle class will grow by about 1.4 billion persons from 2009 to 2020, to 3.2 billion. In the Asia-Pacific region alone, the middle class is likely to grow by around 1.2 billion persons in that period.
Global population growth
The world’s population will continue to grow in the coming years and decades. At the end of 2016, some 7.4 billion people inhabited the earth. That number is growing at a rate of more than 80 million each year. Population growth is especially strong in Africa and Asia. The world’s population is expected to reach about 8.5 billion by 2030. And all those people will need to eat and drink.
The digitalisation of beverage plants is advancing at a rapid pace. New data and Internet-based business models are built on collecting and analysing data and using the results to derive benefits for customers. Krones intends to be a leader in this area for the beverage and packaging industry.
We are going where beverage consumption is growing fast
In order to achieve above-average growth, Krones has positioned itself well in markets with especially high rates of beverage consumption. The highest growth rates are likely to be in the Africa/Middle East region, where consumption is expected to grow at an average annual rate of 7.2% in the period from 2016 to 2019. Demand for packaged beverages is also expected to grow at a far higher rate in the Asia-Pacific region and China than in the world as a whole. These are all regions in which Krones has a strong presence and intends to further build its market position.
Revenue by region
Balanced revenue worldwide
Krones has a presence and a strong market position in every region of the world. Because our revenue is well balanced internationally, we are far better able to offset temporary shifts in demand in certain regions. In 2016, Krones generated 53% of revenue in growth markets and 47% in mature markets.
Krones’ growth vs. market growth
Besides the 3% market growth that is relevant for Krones, the company intends to grow through acquisitions and new solutions. New beverage and packaging types will also boost demand for sophisticated solutions from Krones. In all, Krones intends to achieve 7% revenue growth each year through 2020.
Krones intends to further increase profitability
Profitability enables us to invest and pay dividends. Krones intends to increase profitability in order to continually evolve the group and finance growth without incurring significant debt. We want to improve our EBT margin to 8 percent by 2020.
Expanding our global footprint
In order to improve profitability, Krones will strengthen its global presence. In the future, more procurement, engineering, and parts of production will take place in the regions in which our customers operate their plants. That will enable us to deliver regionally-adapted products to the emerging markets at competitive prices.
Short response times are essential to the success of any service business. That is why we are continually moving closer to our customers and increasingly deploying local staff to carry out LCS projects. Key spare parts are kept on hand at regional warehouses. Seven Centers at strategically important locations serve as bases for our international service activities. Each of these service hubs is responsible for a set of countries and branch offices.
Large installed base as the foundation for stable service revenue
Krones has a broad installed base of beverage and packaging machinery worldwide. To ensure that these systems remain productive over their entire service lives, we offer our customers a wide range of services as well as replacement parts and upgrades. That makes for stable revenue growth overall.
Krones wants to give shareholders a proper return on the capital they make available to our company. A performance ratio that serves as an indicator of this is the pre-tax return on equity (ROE). It shows the relationship between earnings before taxes and average equity. Krones’ ROE is well above the capital market rate plus a risk premium. Thus, Krones is generating long-term value for shareholders and passing its success on to them by way of rising dividends. As a matter of policy, the company pays out 25% to 30% of consolidated net income to shareholders.
Share price outperforms
Our share price has climbed 125% over the past ten years. The Krones share’s average annual price gain in this period comes to 8.5%. That is more than the MDAX price index (6.4%), that is, the MDAX excluding dividends. Including dividends, and assuming that the dividends were reinvested in Krones shares, the average annual return for the last ten years comes to 9.9%. The comparable MDAX performance index gained only 8.8% annually.