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    Quarterly statement Q3 2018
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    Quarterly statement Q3 2018

      Highlights and key figures

      Krones reduces turnover and earnings forecast for 2018

      • At the end of the first nine months, EBT is down by 17.0% to €139.4 million due to rising costs of goods and labour and to a one-time expense in connection with setting up our production location in Hungary.
      • Based on the results and the current forecast, Krones is reducing its full year earnings forecast for 2018. Adjusted for one-time expenses, the EBT margin is targeted at 6.5% instead of the 7.0% projected previously.
      • Turnover for the first three quarters, at €2,692.8 million, is 7.3% higher than in the previous year. The Executive Board is nonetheless revising the turnover growth target for 2018, due to large-scale projects being postponed and to negative currency effects, from 6% to 4%.
      • Overall, Krones maintains its mid-term targets. However, reaching these targets will take one or two years longer than planned.
      Key figures for Q1–Q3
          1 Jan – 30 Sep
      2018
      1 Jan – 30 Sep
      2017
      Change
      %
      Revenue € million 2,692.8 2,508.9 +7.3
      Order intake € million 2,940.0 2,696.8 +9.0
      Orders on hand at 30 September € million 1,487.3 1,332.6 +11.6
               
      EBITDA € million 206.1 233.7 –11.8
      EBITDA margin % 7.7 9.3 –1.6 PP*
      EBIT € million 132.6 163.1 –18.7
      EBT € million 139.4 168.0 –17.0
      EBT margin % 5.2 6.7 –1.5 PP*
      Net income € million 99.4 114.6 –13.3
      Earnings per share 3.16 3.68 –14.1
               
      Capital expenditure for PP&E and intangible assets € million 89.6 74.8 +€14.8 million
      Free cash flow € million –140.0 –242.0 +€102.0 million
      Net cash and cash equivalents at 30 September** € million –34.1 77.9 –€112.0 million
      Working capital to revenue *** % 28.8 26.5 +2.3 PP*
      ROCE % 12.3 14.6 –2.3 PP*
               
      Employees at 30 September        
      Worldwide   15,949 15,174 +775
      Germany   10,601 10,295 +306
      Outside Germany   5,348 4,879 +469
      * PP = percentage points
      ** Cash and cash equivalents less debt
      *** Average of last 4 quarters
      Key figures for Q3
          1 Jul – 30 Sep
      2018
      1 Jul – 30 Sep
      2017
      Change
      %
      Revenue € million 902.0 733.7 +22.9
      Order intake € million 925.2 917.5 +0.8
               
      EBITDA € million 48.8 69.3 –29.6
      EBITDA margin % 5.4 9.4 –4.0 PP*
      EBIT € million 22.9 46.0 –50.2
      EBT € million 26.7 47.0 –43.2
      EBT margin % 3.0 6.4 –3.4 PP*
      Net income € million 22.5 32.2 –30.1
      Earnings per share 0.71 1.04 –31.7

      Letter from the Executive Board

      Dear shareholders and friends of Krones,

      The third quarter of 2018 developed positively for Krones on the demand side. Our customers’ investment confidence remained satisfactory, although the economic ­climate has deteriorated significantly since the beginning of the year. The company thus increased turnover by 7.3% and order intake by 9.0% year-on-year in the first nine months. Despite this, Krones will remain below its forecast turnover growth in 2018 as a whole. This is due to large-scale projects being postponed and to negative currency effects. Instead of 6%, we now expect turnover growth of 4% in 2018. 

      Krones cannot be satisfied with the development of its profitability. We were no ­longer able to compensate the strong increasing costs of goods and labour. The price increase we introduced in May to offset the cost increases will not significantly influence our order intake and turnover until next year. On top of this, there are one-time expenses in the low double-digit millions of euros, incurred mainly during the third quarter in connection with setting up our production location in Hungary. As we continue to invest heavily in our company’s future – in areas such as digitalisation and expanding our global footprint – we will no longer meet the profitability target set for this year. Earnings before taxes (EBT) from January to September fell, partly because of the one-time expense, by 17% to €139 million. Instead of the 7.0% EBT margin previously targeted for the full year 2018, we are now targeting an EBT margin, adjusted for one-time expenses, of approximately 6.5%.

      Overall, we are maintaining our mid-term targets of an 8% EBT margin and 22% working capital as a percentage of turnover. The measures we have implemented to enhance profitability have not yet taken full effect. However, reaching these targets will take one or two years longer than planned. 

      Despite the challenges, the company fundamentally maintain an optimistic outlook. Our market continues to present good growth opportunities, especially in emerging economies. Leveraging those opportunities while enhancing Krones’ profitability is now the task at hand. Everyone is called upon to master that task in their day-to-day work. The Executive Board is confident that together, as a team, we will meet the coming challenges and successfully shape the future of Krones.

       

      Christoph Klenk
      CEO


      Report on expected developments

      Krones revises forecast for 2018

      Based on the results for the first nine months of 2018 and the forecast for the fourth quarter, the company is reducing its turnover and earnings forecast. Due to rising costs of goods and labour, investment in digitalisation, start-up costs for expansion of the company’s global footprint and one-time expenses in connection with setting up the new production location in Hungary, Krones’ EBT margin will be below the 7.0% projected for 2018. Adjusted for one-time expenses, Krones now expects an operating EBT margin of approximately 6.5% for the full year 2018. 

      Krones now expects a 4% increase in turnover compared to the previous turnover target of 6%. This is due to currency effects and large-scale projects postponed into 2019. With respect to its third performance target – working capital as a percentage of turnover – Krones expects to reach the communicated target of 28%.

      Both segments below target

      From the start of this year, the core segment – Machines and Lines for Product Filling and Decoration – additionally includes Machines and Lines for the Compact Class, comprising the subsidiaries Kosme and Gernep. Based on strong order intake and an attractive product range, Krones expects core segment turnover to increase by just under 3% in 2018. Due to rising costs of goods and labour and to one-time expenses in connection with setting up the production location in Hungary, the EBT margin will not reach the 8.3% previously aimed for. Adjusted for one-time expenses, the operative EBT margin is targeted at approximately 8%.

      We intend to improve operating profitability in the Machines and Lines for Beverage Production/Process Technology segment – which also includes intralogistics – by the end of 2018. We are confident that we will be able to leverage turnover and earnings potential by further expanding our global footprint and fully integrating acquisitions. In all, for the Process Technology segment in 2018, we are forecasting 10% turnover growth with operating EBT close to breakeven.  

      Medium-term goals to be reached later

      To compensate for cost increases and to enhance profitability, Krones is implementing extensive measures under its Value strategy program. Additionally, Krones raised the prices for all bottling and packaging equipment and for process technology by an average of 4.5% effective 1 May 2018. The strategic measures implemented by Krones have not yet taken full effect.

      Overall, Krones is maintaining its mid-term targets of an 8% EBT margin and 22% working capital as a percentage of turnover. However, reaching these targets will take one or two years longer than planned.

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