Dear shareholders and friends of Krones,
We certainly faced no lack of challenges in 2016. Political unrest in the Middle East, low commodity and energy prices, and the Brexit vote in the UK are just some of the factors that continually created a sense of uncertainty worldwide. All of that didn’t make business any easier for Krones. Competition was stiff on our markets and customers were highly sensitive to prices.
Krones did well despite the difficult Environment
With the Value strategy programme we launched in 2011, we took early action to prepare for difficult markets. It is thanks primarily to Value that we were able to achieve our growth and earnings targets in 2016. Consolidated revenue rose 6.9% to €3.39 billion. Earnings before taxes (EBT) for the group improved 6.4% to €237.6 million. And at 7.0%, our EBT margin was as forecast. We will do everything we can to continue to provide our customers with added value and thus ensure our own continued success.
For example, Krones is strengthening its process technology operations. At €1.5 million, earnings before taxes in the company’s second-largest segment were in slightly positive territory for 2016, as expected. To increase profitability for the long term, Krones began implementing a range of structural measures in late 2015. For example, we are doing more engineering and procurement locally, in our customers’ regions. Krones’ internationalisation efforts have already advanced even further in our machines and lines for product filling and decoration segment. In 2016, we strengthened our international service network and now offer local products that are technologically aligned with the regionally-specific needs of our customers. Our smallest segment, machines and lines for the compact class, which bundles the activities of Kosme and Gernep, made good progress. With an EBT margin of 5.2%, the segment exceeded its forecast profit for 2016 by a small margin. (All figures above relate to the group.)
Continuity provides a solid foundation
The election of Volker Kronseder as Chairman of the Supervisory Board in June 2016 ensures continuity at Krones. That is an essential factor for the company’s long-term development. Our long-time Executive Board Chairman possesses valuable expertise and decades of experience in our markets. As Chairman of the Supervisory Board, Volker Kronseder also has the ability to make important suggestions to the Executive Board while maintaining the necessary distance from business operations. His predecessor, Ernst Baumann, also possessed the same skill. On behalf of the entire Executive Board, I would like to once again express my deep gratitude to Mr. Baumann for his excellent, very effective collaboration over the years.
Expanding our expertise worldwide
Krones wants to continually improve the products and services we offer to customers in order to provide clear added value. To accomplish this, we are expanding our expertise worldwide. Some examples of this can be found on pages 36 to 67 of this Annual Report. All of our innovative efforts are guided by a commitment to sustainability. Our enviro sustainability programme has become a benchmark for the entire industry.
We are buying in some of our new expertise. For example, last year we acquired a 60% stake in System Logistics by way of our Italian subsidiary. The Northern Italian company is a leading supplier of innovative solutions for intralogistics, material flows, and warehousing for the food and beverage industry. By acquiring this stake in System Logistics, we have taken a great step towards capturing and analysing the critical flows of materials and data along customers’ entire value chains. That gives Krones a strong basis from which to lead the way in the digitalisation of beverage plants. We will expand our software expertise and develop new digital business models. These various paths converge in our subsidiary Syskron, which is focused on giving our customers optimum solutions for intelligent factories.
Our acquisition of 80% of the business operations of the US company Trans-Market has significantly strengthened Krones’ process technology business in the USA. This acquisition, made by our US subsidiary, has enabled us to expand our local engineering and procurement capacities.
We also invested heavily in existing structures in 2016. For example, we approved funding to significantly expand our production site at Raubling near Rosenheim, Germany, in 2017. Our German sites remain important for Krones. However, the lion’s share of planned new hiring will take place at our sites around the world as we strive to be closer to our customers. Recruiting and winning the loyalty of qualified people is a major challenge in this respect. That is why we are investing heavily in our workforce, not only in Germany but also at our sites worldwide. Our employees are the keystone of Krones’ success. On behalf of the entire Executive Board, I would like to thank every member of the Krones team for their dedication and accomplishments.
Ambitious growth Targets
We will continue to work together to safeguard our strong market position. From today’s perspective, market conditions appear unlikely to improve in the near future. Nevertheless, we have set ourselves ambitious goals for 2017 and beyond. We aim to further increase Krones’ revenue and earnings. For 2017, we are forecasting revenue growth of 4%. We intend to keep our EBT margin steady at 7%. For revenue, our medium-term target is to grow 7% on average each year through 2020. We aim to increase our EBT margin to 8% in the same period (all figures above refer to the group). We invite you to read more about our medium-term targets on pages 30 to 35. Given the competitive environment, it will not be easy to achieve these goals. However, I firmly believe that, by working together, we can continue to write Krones’ success story.