KBA Group Presses Ahead with Restructuring

WÜRZBURG, GERMANY—May 28, 2014—In his speech at this year’s annual general meeting, Koenig & Bauer (KBA) president and CEO Claus Bolza-Schünemann mainly reported on the measures, goals and current status of the Fit@All program for the restructuring of the group started at the beginning of the year. He also spoke about the group’s financial statements for 2013 and the figures for the first quarter of 2014. “Strengthening KBA’s lasting profitability and competitiveness are the focus and goals of Fit@All," he said. "It is clear that we must sustainably restructure our core business with web and sheetfed offset presses as well as realign capacities to new market conditions. The expansion of new growth areas is also a key aspect of our program. We are convinced that we will be able to harvest the fruits of our realignment in 2015 and that the group will return to sustainable profitability by 2016 at the latest.”

Gradual personnel adjustments…
In the coming months KBA will continue to work on lasting capacity and structural measures, the new site concept as well as reducing the depth of added value by outsourcing more activities which lie outside of the group’s press-related core competences. Between 1,100 and 1,500 jobs from today’s figure of approx. 6,200 will be cut as part of implementing these measures. So far voluntary cancellation and phased retirement agreements as well as social wage agreements and social compensation plans were agreed with union and workforce representatives for around 700 employees at the sites in Mödling, Ternitz, Trennfeld and Würzburg. An agreement and arrangement is also in place for the plant in Radebeul, near Dresden, which will see a reduction of 180 jobs in the middle of next year. Negotiations regarding the necessary cut in payroll by 200 employees at Frankenthal/Pfalz due to capacity and earnings remain ongoing. In spite of efforts to find socially acceptable solutions by all parties involved, operational layoffs are unavoidable. Personnel adjustments will take place in several steps until the end of 2015 given the periods of notice which must be observed and upcoming relocations.

…but not a one-sided reduction
However, Bolza-Schünemann made it clear that Fit@All is more than just a restructuring program. “We aim to achieve an overall cost base at which group sales of €1bn will lead to appropriate earnings," he stated. "We do not want to go overboard with cost savings or shrink beyond recognition, which is why the expansion of potential growth areas is a further pillar of our realignment.”

In this context, he referred to KBA’s special applications which can be expanded further, such as banknote and digital printing, metal decorating and coding as well as to the new subsidiaries KBA-Flexotecnica and KBA-Kammann acquired last year. These are currently being integrated into the world’s second-largest press manufacturer’s international market presence and have opened up growth markets for flexible packaging and the direct decoration of hollow containers which were previously not served by KBA.

New group and management structure
According to Bolza-Schünemann KBA is preparing a new group and management structure with the goal of becoming a decentralised, highly flexible press manufacturing group. Units for production, sheetfed offset, web offset and special presses with clear responsibilities for earnings should carry out operational activities under the umbrella of Koenig & Bauer AG. KBA calls these product houses and anticipates more transparency and strategic flexibility with the establishment of these distinct areas of responsibility.

On May 1, 2014, KBA took a first step towards defining the new organizational structure within the Parent. From an organisational point of view, along with a sheetfed product house (sheetfed offset in Radebeul), a web product house (web offset in Würzburg, excluding special machines) was also established. A sustainable concept for the legal implementation of the new group structure including changes to group reporting will be submitted to the annual general meeting for approval next year. Prior to this, numerous tax and legal queries have to be clarified, and financial and IT issues solved. This requires “diligence and time”, says the group’s CEO. In contrast, current subsidiaries which are predominantly active in special markets are widely set up as autonomous business units to a large extent.

Financial statements for 2013 affected by special expenses
When looking back at 2013 Bolza-Schünemann referred to demand for web presses for newspapers and commercial printing, but also for sheetfed offset presses, that remained considerably below expectations. The lower level of investment in KBA’s traditional offset business compared to the Drupa-year of 2012 contributed largely to a decrease in order intake of 9.3 percent to over €1bn. Group sales stood at about €1.1bn. Despite sales which were approx. €200m below targets, KBA posted an operating profit of €24.5m. Nevertheless, special effects of –€155.2m for provisions as part of the Fit@All program and impairments of fixed assets were incurred in 2013. To sum up the KBA group generated a pre-tax loss (EBT) of €138.1m.

To the shareholders, Bolza-Schünemann said, “Special expenses of €155.2m may seem very high, however with this we have covered all foreseeable risks and expenses as far as possible and acceptable when drawing up our financial statements for 2013. This ensures that we be on the safe side financially and in terms of our balance sheet during the implementation of Fit@All in 2014 and 2015. Without these considerable special items we would have generated a group pre-tax profit of €17.1m. This is the first time since 2008 that we have posted a loss and therefore we are unable to submit a dividend proposal.”

Cautious outlook for 2014
2014 began far more successfully for the KBA group than in the weak first quarter of 2013 as announced in its first quarterly figures published on May 9th. New orders rose 20.8percent to €241.5m and sales increased by 11.9percent to €213.4m. In addition, at –€10.2m the group’s operating result after three months was noticeably better than in the corresponding prior-year quarter (2013: –€16.9m). The sheetfed offset division generated an operating profit of €1.2m again after a prolonged period of time. Ultimately, group results before taxes (EBT) after three months came to –€12.1m compared to last year’s figure of –€18.8m.

Notwithstanding the current somewhat unstable economic and political environment, Bolza-Schünemann confirmed group sales of €1bn to €1.1bn and a positive operating result before special items as goals for 2014. KBA CEO: “Group earnings before taxes are very likely to be negative once again given limited special expenses. Nevertheless, we are convinced that we will be able to see the fruits of our realignment in 2015 and that the group will return to sustainable profitability by 2016 at the latest.”

The press manufacturer’s 89th annual general meeting was chaired by Martin Hoyos, lawyer, auditor and since March 7, 2014 supervisory board chairman at KBA. The meeting took place at the Vogel Convention Center in Würzburg, Germany.

Source: KBA.