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    Krones Group Annual Report 2021

    • Positive economic outlook for 2022
    • Krones expects good growth in the current year
    • Profitability once again to increase in 2022

    Report on expected developments

    Global economy expected to grow by 4.4% in 2022, with decreasing momentum

    In January 2022, the International Monetary Fund (IMF) forecast global economic growth of 4.4% for 2022. This means that the upswing is losing momentum compared with 2021 (growth of 5.9%). In October 2021, the experts’ forecast had been 0.5% higher at 4.9%. The IMF expects that the rapid spread of the omicron coronavirus variant will slow economic growth. Further reasons for the experts’ more guarded assessment include rising energy prices and supply shortages, which are driving a significant rise in inflation, particularly in the USA and many emerging economies.

    The IMF economists see risks for downward revisions of the growth forecast among other things in the further course of the coronavirus pandemic. Further supply and material shortages could also slow growth and lead to prolonged ­inflation. The interest rate hikes that would then be necessary would trigger ­financial market upheaval and negatively impact the global economy.

    On IMF estimates, growth in emerging and developing economies, at 4.8% in 2022, will slow significantly relative to the strong previous year (6.5%). This is mainly due to China. The IMF forecasts that Chinese GDP growth will fall to just 4.8% in 2022 (2021: 8.1%). Key factors behind the weaker growth are lockdowns in entire cities and regions under the zero-Covid strategy and financing problems at real estate developers.

    The IMF published the forecasts for global economic growth in 2022 before the Russian attack on Ukraine. On 25 February, the IMF issued a statement that the crisis in Ukraine comes at a delicate time, when the global economy is recovering from the ravages of the Covid-19 pandemic, and threatens to undo some of that progress.

     

     

    As in the previous year, the strongest growth among emerging markets is expected to be recorded by India, with a repeated strong 9.0% increase. The IMF expects less dynamic growth for the Middle East/Central Asia region. There, the experts forecast GDP growth of 4.3%. In Latin America, the economy is expected to grow by just 2.4% in 2022. This region is being held back by rising interest rates due to high inflation.

    For industrialised economies, the IMF forecasts 3.9% GDP growth in 2022. In Germany, the experts expect a slightly smaller GDP increase of 3.8%. For the euro area, the IMF anticipates GDP growth of 3.9%. Due to the interest rate hikes announced by the US Federal Reserve and the supply and material shortages, the IMF experts have downgraded the economic growth forecast for the USA in 2022 to 4.0%. The October 2021 forecast had still been for an increase of 5.2%. As in the previous year, Japan is likely to be one of the slowest-growing industrialised economies. The IMF’s forecast is for growth of 3.3%.

    Good overall conditions for 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 our company’s products and services. With a continued low unemployment rate and slightly increased inflation, we do not expect any overall ­negative impacts on Krones’ business.

    Positive outlook for the machinery sector

     

     

    Germany’s Mechanical Engineering Industry Association (VDMA) expects that the strong order intake in 2021 will continue to have a positive impact on the industry in 2022. The VDMA expects machinery and industrial equipment output to rise this year by 7% year-on-year. Demand is primarily being driven by Europe and the USA. The Chinese sales market already lost some momentum in 2021. Prolonged material shortages could retard growth in the sector. These are not expected to ease until the second half of 2022 at the earliest.

    Good overall economic outlook for 2022

    After a positive financial year overall in 2021, Krones is fundamentally optimistic at the beginning of the 2022 financial year. The reason for this, in addition to the good overall economic forecasts, is sustained high demand for Krones’ products and services – despite price increases in the second half of 2021. There are also risks for the global economy, however, and hence also for Krones’ business performance. 2022 will be marked by rising US interest rates and by economic and political uncertainties. For example, it is not currently possible to predict how the war in Ukraine will develop and how its consequences will impact the global economy. The ongoing path of the coronavirus pandemic is also hard to predict. If the risks do not affect the economy more than currently expected, there is not likely to be a negative impact on Krones’ order intake from customers and investment confidence in the beverage industry will remain at a good level.

    Overall, we therefore expect the global market for bottling and packaging equipment, along with selling prices, to continue increasing in 2022. However, competition in our markets and cost pressure will again remain strong this year.

    The medium and long-term outlooks remain positive. Consumer demand for packaged beverages and liquid foods is steadily growing due to a number of megatrends such as the growing world population. The focus on sustainability and digitalisation is likewise supporting demand for innovative beverage filling and packaging machinery. 

    Because they share the same sales and procurement markets, the economic, sectoral and company-specific outlook essentially applies to all three segments of the Krones Group.

    All segments to grow and improve profitability in 2022, including the new Intralogistics segment

    Commencing in the 2022 financial year, the Krones Group reports on three segments. The Intralogistics segment is added alongside the two existing segments. This is because the Intralogistics business, which was previously part of the Beverage Production/Process Technology segment, has reached a commensurate size as a result of the previous years’ strong growth. The new segmentation also enhances the transparency and depth of Krones’ reporting.

    Krones will continue to implement the structural measures already launched and to expand its global footprint in the current year. This permits cost structures to be further optimised and made more flexible. In addition, we aim to exploit growth opportunities in our market throughout the Group with innovations and future-ready products and services. Acquisitions are an option in all segments for additional inorganic growth. The goal is to increase profitability in all segments with the support of higher revenue.

     

     

    In the core segment, Machines and Lines for Product Filling and Decoration, ­Krones will continue to further streamline structures and processes while also expanding its global footprint. To this end, it will expand production in Hungary and China together with the related supply chains and strengthen the ­regional service network. In addition, Krones will make use of its extensive line expertise to consolidate and expand its market position with regard to efficient, reliable, high-performance filling and packaging lines.

    The strong trend among our customers towards sustainable production with lower carbon emissions is likewise expected to support growth. Krones is ideally positioned here with its resource-saving enviro products and sustainable PET solutions, including PET recycling.

    The services business, supported by digital solutions, is also anticipated to ­contribute to growth in the core segment this year, despite travel restrictions.

    For the core segment in 2022, Krones expects 5% to 7% revenue growth. The EBITDA margin is expected to be around 9% to 10%.

     

    As well as continuing to implement cost-cutting measures, the focus in the Machines and Lines for Beverage ­Production/Process Technology segment is on closer coordination between global units. Growth is expected from new markets such as cosmetics and alternative ­proteins. The after-sales business is also being expanded.

    Overall, Krones forecasts revenue growth of 10% to 15% in 2022 for the Process Technology segment – which included intralogistics until 2021 – with an EBITDA margin of around 5% to 7%.

     

    In the new Intralogistics segment added in 2022, we expect ongoing strong demand for our products and services. This segment is benefiting from increasing automation and digitalisation as well as booming e-commerce. In 2022, Krones will continue to deliver above-average growth in intralogistics and further improve profitability. Revenue is expected to grow by 8% to 13% and the EBITDA margin to be between 4% and 6%.

    Krones targets improvements in revenue, the EBITDA margin and ROCE for the Group in 2022

    Krones made a strong start to the 2022 financial year with a very large order backlog. At the same time, various uncertainties mean that the business environment remains challenging for Krones. These include material shortages and problems in global supply chains, political risks in Europe and other parts of the world, and also strong inflation in many countries. It is also uncertain how the Covid-19 pandemic will continue to play out around the world and how the impacts of the war in Ukraine will affect the growth of the global economy in 2022.

    Based on the prevailing macroeconomic outlook and the current expected development of the markets relevant to Krones, the company expects consolidated revenue growth of 5% to 8% in 2022.

    Thanks to increasing revenue and the continued implementation of the cost optimisation measures, Krones aims to improve its profitability this year compared with 2021. At group level for 2022, the company forecasts an EBITDA margin of 8% to 9%.

    For the third performance target, return on capital employed (ROCE), Krones expects an increase this year to between 10% and 12%. Beginning in 2022, ROCE replaces the previous third key performance indicator, working capital as a percentage of revenue. ROCE reflects both working capital and fixed assets. In addition, ROCE gives investors an even more accurate picture of how efficiently the company manages the capital it uses.

     
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