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    Quarterly statement Q1 2018
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    Quarterly statement Q1 2018

      Highlights and key figures

      Krones had a good start to 2018 with a strong first quarter

      • At €891.7 million, revenue was down 0.9% from the prior-year figure, which had been quite high due to timing.
      • Order intake rose 13.4% to €992.4 million. Acquisitions had no significant impact on revenue or order intake in the first quarter of 2018.
      • Earnings before taxes decreased 14.8% to €56.2 million partly due to a one-time effect within personnel expenses. The EBT margin decreased from 7.3% to 6.3%.
      • Executive Board confirms targets for 2018. Krones expects 6% revenue growth and a reported EBT margin of 7.0%.
      Q1 2018 Selected Company data
          1 Jan-31 Mar
      2018
      1 Jan-31 Mar
      2017
      Change
      Revenue € million 891.7 899.4 – 0.9%
      Order intake € million 992.4 875.5 + 13.4%
      Orders on hand at 31 March € million 1,340.8 1,120.8 + 19.6%
               
      EBITDA € million 78.9 87.2 – 9.5%
      EBIT € million 55.5 64.0 – 13.3%
      EBT € million 56.2 66.0 – 14.8%
      EBT margin % 6.3 7.3 – 1.0 PP*
      Consolidated net income € million 38.7 43.7 – 11.4%
      Earnings per share 1.23 1.40 – 12.1%
               
      Capital expenditure for PP&E and intangible assets € million 27.4 19.6 + €7.8 million
      Free cash flow € million – 14.1 –112.8 + €98.7 million
      Net cash and cash equivalents at 31 March** € million 143.8 256.1 – €112.3 million
      Working capital to revenue*** % 28.2 26.8* + 1.4 PP*
      ROCE % 15.3 17.8 – 2.5 PP*
               
      Employees at 31 March         
      Worldwide   15,461 14,660 + 801
      Germany   10,394 10,124 + 270
      Outside Germany   5,067 4,536 + 531

      * PP = percentage points ** Cash and cash equivalents less debt
      *** Average of last 4 quarters


      Letter from the Executive Board

      Dear shareholders and friends of Krones,

      Krones was able to take the momentum from a successful drinktec 2017 into the new year. Customers continue to show high interest in our strong portfolio of products, services, and digitalisation solutions. The strong global economy also supported demand for our machines and lines. Experts are predicting that the world economy will grow by 3.9% in 2018 (previous year: 3.8%). However, rising trade ­tensions could make that uncertain. 

      The results for the first three months of 2018 met our expectations. Although Krones’ revenue (–0.9%) and earnings before taxes (–14.8%) were down compared with the prior-year period, it should be noted that the first quarter and last quarter of 2017 had a relatively high revenue level. 

      Selling prices in our markets have been flat for several years now. To ensure Krones’ continued ability to offer the highest quality, innovative products and services despite rising costs for goods and services purchased and personnel, ­Krones is raising its prices on all machines for the bottling and packaging equipment and for the process technology by 4.5% on average effective 1 May 2018 and is adjusting its payment terms. That is essential to ensure that ­Krones can continue to invest steadily in ­developing and evolving its portfolio of products and generate real added value for customers with its machines, lines, and services. We will also continue to invest in existing cost-reduction initiatives launched as part of our Value strategy programme, such as expanding our global footprint. Because the price adjustments are aimed at offsetting current cost increases, ­Krones is keeping its revenue and earnings forecast for 2018 and for the medium term unchanged. Krones intends to maintain its market position as a provider of solutions for food and beverage production within the bottling and packaging industry.

      As of the start of 2018, ­Krones now operates through two segments. The operations that had previously made up our smallest segment, Machines and Lines for the ­Compact Class (subsidiaries Kosme and Gernep) are now part of our core ­segment, Machines and Lines for Product Filling and Decoration. The Compact Class developed well in recent years and is expected to play an important role within our core segment. The new core segment and our second segment, Machines and Lines for Beverage ­Production/Process Technology, give the ­Krones Group a lean, powerful structure that will enable us to continue to develop sustainably.

       

      Christoph Klenk
      CEO


      Report on expected developments

      Krones remains optimistic about the financial year 2018 

      With economic forecasts for the current year positive overall, Krones remains optimistic about 2018 despite several political and economic uncertainties. The packaging machinery market is growing at a relatively stable pace because demand for packaged beverages and foods is rising. 

      Revenue and earnings expected to increase further in 2018 

      Krones has taken the momentum from a successful drinktec 2017 into the current year. Launching new products and services and further reducing costs under our Value strategy remain important factors in our effort to grow further and increase group earnings in 2018. Moreover, Krones will increase its presence worldwide and move even closer to customers. Parts of procurement, engineering, and production will take place in the regions in which our customers operate their plants. That will enable us to deliver regionally-adapted products faster and at more competitive prices. 

      As of the start of this year, our core segment Machines and Lines for Product Filling and Decoration now also includes our machines and lines for the compact class, that is the subsidiaries Kosme and Gernep. Innovations and the continued expansion of international service centres will contribute to the newly structured core segment’s growth in 2018. We intend to improve our position in the emerging markets by offering less-complex systems that deliver high performance. In addition, Krones will continue to press ahead with the modularisation of our products in our core segment and expand our global footprint. That will enable us to achieve better procurement terms and increase efficiency within the company. 

      Krones expects core-segment revenue to increase by 4%, slightly more than the market as a whole, in 2018 on strong order intake and an attractive product range. Krones expects the reported EBT margin to be 8.3% in 2018 despite high capital expenditure. 

      We intend to significantly improve profitability in the Machines and Lines for Beverage Production/Process Technology segment in 2018. Measures implemented have not yet taken their full effect. However, we are confident that we will be able to leverage revenue and earnings potential this year by further expanding our global footprint and fully integrating the acquisitions in this segment.

      Intralogistics, which is part of the Process Technology segment, is also expected to utilise the market’s high potential for growth this year. To accomplish that, we will further develop our subsidiaries System Logistics and Syskron, both regionally and in terms of product technology.

      In all, we are forecasting 15% revenue growth and an EBT margin of 1.0% for the Process Technology segment for 2018. 

      Strong first quarter and price increases support outlook for 2018

      We have got the year off to a positive start and demand for our products and services remains high. Therefore, we are confident that we will achieve our targets for 2018. To ensure Krones’ continued ability to offer innovative products and services despite rising costs for goods and services purchased and personnel, we have to raise our prices. For that reason, the company will be raising the prices on all machines for the bottling and packaging equipment and for the process technology by 4.5% on average effective 1 May 2018. Because the price adjustments are aimed at offsetting current cost increases, Krones is keeping its revenue and earnings forecast for 2018 and for the medium term unchanged. Krones intends to maintain its market position as a provider of solutions for food and beverage production within the bottling and packaging industry.

      Based on the current macroeconomic prospects and expected development of the markets relevant to Krones, we are targeting consolidated revenue growth of 6% in 2018. The regional distribution of revenue in 2018 is likely to be little changed from the previous year.

      Krones intends to keep profitability stable despite heavy investment in digitalisation and start-up costs associated with our global footprint, particularly the new site in Hungary. The company expects to post an EBT margin of 7.0% in 2018. We intend to improve our third financial performance target, working capital to revenue, to 26%.

        Forecast for 2018* Actual value Q1 2018
      Revenue growth + 6% – 0.9%
      EBT margin 7.0% 6.3%
      Working capital to revenue (%) (LTM) 26% 28.2%

      *Excluding acquisitions

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