Low inflation rates and solid employment figures support consumption
Consumer spending is a key factor determining the propensity of Krones’ customers to commit to capital expenditure and, consequently, the level of demand for beverage filling and packaging equipment. Low unemployment and inflation rates have a positive effect on consumer’s buying power. They therefore support demand for packaged food and beverages and indirectly influence demand for Krones’ products and services. For 2021, we expect that a slightly higher unemployment rate and ongoing low inflation will not have an overall negative effect on Krones’ business.
Machinery sector expecting rise in output
Germany’s Mechanical Engineering Industry Association (VDMA) expects that the slight upswing in the economy will also have a positive impact on the industry in 2021. The VDMA expects machinery and industrial equipment output to rise 4% year-on-year. This forecast is subject to a high degree of uncertainty, however. For one thing, economic growthremains fragile. For another, there are concerns of increasing protectionism because German mechanical engineering has an export share of around 80%. The recovery could also leave machinery manufacturers facing tight liquidity as they have to make advance payments.
Krones cautiously optimistic going into 2021
After a difficult year in 2020, Krones is cautiously optimistic at the beginning of the 2021 financial year. However, there are still sufficient reasons for some caution. While the economic forecasts for this year are positive overall, 2021 will once again be marked by political and economic uncertainties. In particular, it is not yet possible to predict the further impacts of the coronavirus on the global economy. The same uncertainties are also affecting order placement by Krones customers. Although consumer demand for packaged beverages is expected to continue rising in 2021, companies in the international beverage industry are holding back on investment due to the unstable overall economic situation. Overall, we therefore expect the global market for bottling and packaging equipment, along with selling prices, to stabilise at a relatively low level in 2021. Competition in our markets and cost pressure will again remain strong this year.
The medium- and long-term outlook remains positive. This is because consumer demand for packaged beverages and liquid foods is steadily growing due to a number of megatrends such as the growing world population.
Both segments should stabilise in 2021 and recover over the course of the year
Krones’ focus this year will be on continuing to implement the adopted structural measures in order to quickly adjust cost structures to the lower level of revenue. In addition, we aim to use growth opportunities throughout the Group with innovations and future-ready products and services. No major acquisitions are planned in either segment for 2021. The goal is to increase profitability in both segments this year.
In the core segment, Machines and Lines for Product Filling and Decoration, Krones is placing increased focus – alongside cost reductions – on the core competencies of sales, engineering, final assembly and lifecycle service. The company additionally intends to use these core competencies to enter new markets. Krones will also continue to focus on its strengths in order to consolidate and extend its market position. For example, Krones intends to use its extensive line expertise to win more customers for efficient and reliable filling and packaging lines. Its leading position in terms of sustainability is also expected to support growth for Krones. Customers want to, and have to, save resources. Krones is ideally positioned here with its resource-saving enviro products and sustainable PET solutions.
For the core segment in 2021, Krones expects 2% to 3% revenue growth. The EBITDA margin is expected to be around 8.0% to 9.0%.
Continuing to implement the structural measures is the focus in the Machines and Lines for Beverage Production/Process Technology segment. The final spin-off of the brewery activities is the main priority here. Under the Steinecker brand, the new company will develop the brewery business independently and improve its profitability. We expect ongoing strong demand for our products and services in the intralogistics business. This business is benefiting both from increasing digitalisation and from the market changes brought about by Covid-19, such as shorter delivery times, growing automation and more online ordering. In 2021, Krones will continue to deliver above-average growth in intralogistics and further improve profitability.
Overall, we forecast revenue growth of 5% to 7% for the Process Technology segment – which also includes intralogistics – with an EBITDA margin of around 0% to 1.0% in 2021.
Krones targets improvements in revenue and the EBITDA margin in 2021
On the basis of the current general economic outlook, we expect the markets relevant to Krones to stabilise in 2021 and to show signs of recovery especially in the second half of the year. Based on this, the company expects revenue growth of 2.5% to 3.5% for the Group in 2021.
Thanks to slightly increasing revenue and the adopted structural measures, Krones aims to improve its profitability this year compared with 2020. For 2021, the company forecasts an EBITDA margin of 6.5% to 7.5% for the Group. That is equivalent to an EBT margin of 3.0% to 4.0%.
For its third performance target, working capital to revenue, Krones expects a figure of 26%–27% in 2021. The company intends to improve this performance indicator through more intensive management of working capital parameters, notably receivables.
The guidance for 2021 is subject to the assumption that there will be no severe impacts from the Covid-19 pandemic such as harmful virus mutations or vaccination difficulties. This would hit the economy and hence also Krones harder than currently expected and could lead to negative revenue and earnings effects.