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    Report for the second quarter 2019
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    Report for the second quarter 2019

      Highlights and key figures

      High costs and unfavourable product mix impact profitability at Krones in first half of 2019

      • Revenue, at €1,889.3 million, is 5.5% higher than in the previous year.
        Adjusted for acquisition and currency effects, the growth figure is 1.8%. Order intake is up 1.2% to €2,038.6 million.
      • High costs and unfavourable product mix impact profitability.
        EBT is down 57.5% to €47.9 million. The EBT margin went down from 6.3% to 2.5%.
      • The Executive Board forecasts an EBT margin of approximately 3% for 2019 and is working on further structural changes for a sustained improvement in earnings.
      • Krones is maintaining its mid-term targets.
      Key figures for H1 2019
          1 Jan – 30 Jun
      2019
      1 Jan – 30 Jun
      2018
      Change
      Revenue € million 1,889.3 1,790.8 + 5.5 %
      Order intake € million 2,038.6 2,014.8 + 1.2 %
      Orders on hand at 30 June € million 1,410.4 1,464.1 – 3.7 %
               
      EBITDA € million 116.9 157.3 – 25.7 %
      EBITDA margin % 6.2 8.8 – 2.6 PP*
      EBIT € million 47.5 109.7 – 56.7 %
      EBT € million 47.9 112.7 – 57.5 %
      EBT margin % 2.5 6.3 – 3.8 PP*
      Consolidated net income € million 33.3 76.9 – 56.7 %
      Earnings per share 1.06 2.45
               
      Capital expenditure for PP&E and intangible assets € million 91.4 58.5 +€32.9 million
      Free cash flow € million – 259.4 – 56.2 –€203.2 million
      Net cash and cash equivalents at 30 june** € million – 108.7 49.7 –€158.4 million
      Working capital to revenue *** % 26.0 28.8 – 2.8 PP*
      ROCE % 5.5 15.5 – 10.0 PP*
               
      Employees at 30 June        
      Worldwide   17,128 15,568 + 1,560
      Germany   10,764 10,376 + 388
      Outside Germany   6,364 5,192 + 1,172
      Key figures for Q2 2019
          1 Apr – 30 Jun
      2019
      1 Apr – 30 Jun
      2018
      Change
      Revenue € million 905.8 899.1 + 0.7 %
      Order intake € million 997.0 1,022.4 – 2.5 %
               
      EBITDA € million 30.9 78.4 –  60.6 %
      EBITDA margin % 3.4 3.4 – 5.3 PP*
      EBIT € million – 4.3 54.2
      EBT € million – 3.6 56.5
      EBT margin % – 0.4 6.3 – 6.7 PP*
      Consolidated net income € million – 3.0 38.2
      Earnings per share – 0.09 1.22
      * Percentage points
      ** Cash and cash equivalents less debt
      *** Average of last 4 quarters

      Letter from the Executive Board

      Dear shareholders and friends of Krones,

      The second quarter was influenced by difficult economic conditions. Uncertainties such as the unresolved trade conflict between China and the USA and the debate about the sustainability of PET packaging eroded our customers’ investment confidence. Despite these factors, Krones still achieved satisfactory revenue growth of 5.5% in the first half of 2019. In contrast, earnings before taxes (EBT) for that period were well below expectations, falling 57.5% to €47.9 million. Profitability was affected by high material costs, an unfavourable product mix and temporarily weaker demand in parts of the after-sales business. For the year 2019, Krones now expects an EBT margin of around 3% instead of previously 6%. The company continues to expect revenue growth of 3%.

      We are aware that we need to make changes. The Executive Board has therefore taken further action to counter the negative impacts on earnings. We are progressing well with the expansion of our global footprint. The new plant in Hungary is thus fully on schedule and on budget.

      The strategic measures launched to date, such as the price increases and expansion of our global footprint so far, are not enough for the earnings targets to be attained on a long term basis. The Executive Board is therefore currently working on further structural changes for a sustained increase in profitability. These changes focus on reducing complexity, rapid response to market needs and shaping an even more customer-centric business organization.

      The situation is challenging and it will stay that way for the foreseeable future. But there are also upsides: Krones serves a globally growing market. To make use of these opportunities, we must move quickly and be flexible in the various markets we serve. The current debate about PET packaging, as with the digitalisation of beverage plants, thus also presents Krones with new opportunities for innovative solutions. 


      Christoph Klenk
      CEO

      Report on expected developments

      Long-term growth trend in Krones’ market intact

      Krones has a very good market position and is a healthy and strong company. We operate in a market with stable medium and long-term growth. More than seven billion people need to be supplied with food and above all beverage products. The market for Krones’ products and services is expected to continue growing faster on average than the global economy.

      Krones’ customers nevertheless display a degree of uncertainty at present because, like others, they take current economic developments into account in their decision processes. The global economic slowdown and the many sources of geopolitical and economic uncertainty are causing investment decisions to be delayed. Together with continued high material and labour costs, this currently presents Krones with major challenges.

      Krones expects better results in the second half than in the first six months of 2019

      The Executive Board has taken further action to offset the negative impacts on earnings. This includes among others a recruitment freeze and measures to reduce material costs. We are progressing well with the expansion of our global footprint. The new plant in Hungary, for example, is fully on schedule and on budget. Krones will start producing there in the course of this year and will generate positive earnings contributions from the Hungarian plant from 2020 as planned.

      Krones expects, in line with previous year, that especially in Q4 the production capacity utilisation will increase as well as the high-margin lifecycle services (LCS) business. Therefore Krones expects better earnings in the second half of 2019 than in the first six months.

      In total, the company expects growth of 3% in 2019. The EBT margin is expected to be around 3%. For its third performance target, working capital to revenue, Krones expects a figure of 26%.

        Target 2019 Actual H1 2019
      Revenue growth 3% 5.5%
      EBT margin 3% 2.5%
      Working capital to revenue 26% 26.0%


      For the core segment, Machines and Lines for Product Filling and Decoration, due to the price increases on new machinery, Krones expects revenue growth of approximately 3% in 2019, which is slightly below the market growth rate. Demand for Krones’ products and services in the service business is projected to make a stronger contribution in the segment in the second half year, especially in the fourth quarter, than in the first. This will have a positive impact on profitability. The EBT margin in the core segment is expected to be approximately 3% in 2019.

      The Machines and Lines for Beverage Production/Process Technology segment is expected to grow more strongly in 2019 than the core segment. We forecast approximately 5% revenue growth. With regard to earnings, it is also necessary to note that Krones’ investment in digitalisation activities is reflected in the Machines and Lines for Beverage Production/Process Technology segment. Overall, we expect an EBT margin of approximately 1% for 2019. The intralogistics business, which is part of the segment, is set to make a positive contribution to earnings.

      Krones working on structural measures

      The strategic measures launched to date, such as the price rises and expansion of our global footprint so far, are not enough for the earnings targets to be attained on a long term basis. The Executive Board is therefore currently working on further structural changes for a sustained increase in profitability. These changes focus on reducing complexity, rapid response to market needs and shaping an even more customer-centric business organisation.

      Krones is maintaining to its mid-term targets. Depending on the overall economic situation and developments in the company’s markets, the Executive Board expects average annual revenue growth of 3% to 5% excluding acquisition effects, an EBT margin of 6% to 8% and working capital at 22% to 24% of revenue.

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