Krones Group Annual Report 2022
- Moderate growth in global economy forecast for 2023
- Krones expects further revenue growth in the current year
- Profitability to further increase in 2023
Report on expected developments
Global economy expected to grow 2.9% in 2023
The ongoing Russia-Ukraine conflict and high inflation will continue to burden global economic growth in 2023. According to the IMF, the euro area economy will remain weak (with growth of 0.7%), while China is expected to grow strongly (by 5.2%) in 2023.
In January 2023, the International Monetary Fund (IMF) forecast global economic growth of 2.9% for 2023. This means that the recovery will continue to lose momentum compared with 2022 (growth of 3.4%). The Russia-Ukraine conflict and interest rate hikes to combat high inflation remain negative factors for the current year. However, the experts’ forecast has improved slightly compared to October 2022 (growth of 2.7%). Their slightly more upbeat view now is based on stable private consumption in industrialised countries and a slight easing of supply and material shortages. China’s growth prospects have also improved following the lifting of the country’s strict Covid policy at the end of 2022.
The IMF economists see downside risks to the growth forecast among other things in an escalation of the Russia-Ukraine conflict and persistently high inflation. This would force central banks to raise interest rates, triggering financial market upheavals and negative repercussions for the global economy. In addition, as far as China is concerned, the continuation of the Covid pandemic and problems in the financial sector could slow down the expected growth trend and cause the Chinese economy to lose power as a growth engine.
For the industrialised countries, the IMF expects GDP growth to fall sharply, from 2.7% last year to 1.2% in 2023. With Europe hit hard by the Russia-Ukraine conflict, the IMF forecasts growth of just 0.7% for the euro area. Germany will lag behind with growth of just 0.1%. The IMF expects the US economy to grow by 1.4% in 2023. Thanks to continued low interest rates and a weak yen, Japan is likely to be one of the fastest-growing industrialised economies in 2023. The IMF’s forecast is for growth of 1.8%.
According to IMF estimates, growth in the emerging and developing countries will improve slightly to 4.0% in 2023 (2022: 3.9%). The main drivers are India and China. For the Chinese economy, the IMF forecasts above-average GDP growth of 5.2% in 2023, following a very weak previous year (2022: 3.0% growth). The key factor behind the upturn in growth is the significant easing of Covid policies and the resulting avoidance of large-scale lockdowns and production stoppages.
As in the previous year, India is expected to record the strongest growth among the emerging markets, with an increase of 6.1%. The IMF expects less dynamic growth in the Middle East/Central Asia region. There, the experts expect GDP to grow by only 3.2% (2022: 5.3%), with growth slowing significantly due to the lower oil price, especially in Saudi Arabia. In Latin America, the economy is expected to grow by just 1.8% in 2023.
Krones’ customers benefiting from stable consumption
Consumer spending is a key determinant of Krones customers’ propensity to invest, and thus of demand for beverage filling and packaging machinery. Low unemployment and moderate inflation rates have a positive effect on consumer purchasing power. They thus support demand for packaged food and beverages and indirectly influence demand for our company’s products and services. With low unemployment continuing and inflation back down compared to 2022, we expect overall consumer and customer demand to be stable in 2023, especially given that consumer spending has been a growth driver in many countries, even in the difficult year of 2022. According to Global Data figures, global consumption of packaged beverages, which is important to our customers, is expected to grow by 3.8% in 2023.
Positive outlook for the machinery sector
The German Mechanical Engineering Industry Association (VDMA) expects that high inflation, the Russia-Ukraine conflict, material shortages and supply chain problems will continue to impact the industry. However, the machinery sector coped well with these challenges in 2022, with output growth estimated at 1%. The VDMA is therefore cautiously optimistic for 2023 and expects the value of machinery and equipment produced this year to fall by only 2% compared with last year – a moderate shortfall compared with past crises. It should be noted here that the various subsectors of the industry are developing at very different rates. For the food processing and packaging machinery subsector relevant to Krones, the VDMA expects growth in 2023.
Good overall prospects for positive business performance in 2023
Krones is optimistic overall going into the 2023 financial year. The reason for this is sustained high demand for Krones’ products and services – despite only slow economic growth.
There are still risks for the global economy and thus also for Krones’ business performance. 2023 will be characterised by relatively high inflation and interest rates and by economic and political uncertainties. For example, it is difficult to predict how the Russia-Ukraine conflict will develop and what impact it will have on the global economy. If these risks do not have a greater impact
on the economy than is currently expected, there should be no negative effect on Krones’ order intake from customers, and investment confidence in the beverage industry will remain at a good level. However, Krones’ order intake in 2023 will be below the very high level of last year, which was partly influenced by catch-up effects.
Overall, we therefore expect the global market for filling and packaging equipment, along with selling prices, to develop positively in 2023. Demand on the markets overall will nevertheless return to normal compared with the extremely good year in 2022. Competition in our markets and cost pressures will again remain strong this year.
The medium and long-term outlook remains positive. Consumer demand for packaged beverages and liquid foods is growing steadily, driven by a number of megatrends such as the growing world population. The focus on sustainability and digitalisation is likewise driving demand for innovative beverage filling and packaging machinery.
Because they share comparable 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 with increasing profitability in 2023
This year, in addition to the price increases, Krones will continue to implement the measures already initiated to optimise cost structures and enhance efficiency in all three segments. That is essential in order to counter rising material and labour costs throughout the group.
In addition, we aim to exploit growth opportunities in our market throughout the group with innovations and future-ready products and services. Our focus here is on the areas of sustainability, digitalisation and system solutions. Acquisitions are an option in all segments to complement our technological and regional strengths and enhance our customer focus.
This year, too, Krones will keep sales prices in line with the market and adhere strictly to the established pricing strategy. The goal is to increase profitability in all segments, supported by higher revenue.
In the core segment, Filling and Packaging Technology, Krones will continue to streamline internal structures and processes while at the same time expanding its global footprint. On the one hand, it will expand production in Hungary and China together with the related supply chains. On the other, we will strengthen our global service network by selective recruitment from the relevant regions. Our service business will also benefit this year from the increasing use of digital solutions.
The strong trend among our customers towards sustainable production with lower carbon emissions will also support growth. Krones is ideally positioned here with its resource-saving enviro products and sustainable PET solutions, including PET recycling. In addition, Krones will make use of its line expertise to consolidate and expand its market position with regard to efficient, reliable, high-performance filling and packaging lines for all three container types, including in aseptics.
For the core segment in 2023, Krones expects 7% to 9% revenue growth. The EBITDA margin is expected to be around 9% to 11%.
In addition to the brewery and soft drinks sectors, the Process Technology segment is focusing on further developing new markets, such as energy-efficient solutions for beverage production and technologies for the production of alternative proteins. Expansion of the after-sales and components business is expected to make an additional contribution to growth and earnings.
In this segment as elsewhere, Krones is benefiting substantially from the trend among our customers towards sustainable and economical production. Krones is well positioned here with its energy-efficient solutions for beverage production and handling.
We will further optimise cost structures in Process Technology by further streamlining and digitalising processes and structures, and by better interconnecting our global units.
Overall, Krones forecasts revenue growth of 15% to 20% for the Process Technology segment in 2023, with an EBITDA margin of around 6% to 7%.
Intralogistics is also benefiting from the sustainability megatrend. More and more, customers demand automation solutions and products that reduce labour and thus increase employee safety. Regionally, Intralogistics mainly plans to expand its presence in the dynamically growing Asian market. A shift in the product mix towards automated picking systems and autonomous mobile robots is also expected to improve the segment’s profitability.
For 2023, Krones plans to achieve above-average growth in Intralogistics, with a further improvement in profitability. Revenue is expected to grow by 10% to 15%, with an EBITDA margin of 6% to 7%.
Krones aims to further increase revenue, the EBITDA margin and ROCE for the group in 2023
Krones started the 2023 financial year with an extremely large order backlog. At the same time, various uncertainties mean that the business environment remains challenging for Krones. These include geopolitical risks in Europe and other parts of the world, and also high inflation and interest rates in many countries. Material shortages and problems in global supply chains remain a source of uncertainty. However, we expect that the situation on the procurement markets relevant to Krones may ease slightly in the second half of 2023.
Based on the prevailing macroeconomic outlook and the current expected development of the markets relevant to Krones, the company expects consolidated revenue growth of 8% to 11% in 2023.
With increasing revenue and continued implementation of the cost optimisation measures, Krones aims to improve profitability again this year compared to 2022. Thanks to the company’s innovative solutions and good project work with customers, Krones succeeded in implementing price increases in 2022. The higher prices will enable the company to offset future cost increases. For 2023, the company is forecasting an EBITDA margin of 9% to 10% at group level.
For the third performance target, return on capital employed (ROCE), Krones expects an increase this year to between 15% and 17%.