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

The difficult economic conditions and uncertainties such as the unresolved trade conflict between China and the USA increasingly affected Krones’ business in the first half of 2019. After strong growth in the first quarter (by 10.3%), revenue from April to June increased by 0.7% year-on-year. In total, the company’s revenue from January to June 2019 improved by 5.5%, from €1,790.8 million in the previous year to €1,889.3 million. Adjusted for acquisitions and currency effects, growth was 1.8%.

The slowdown in the economy and the uncertain economic outlook are also affecting investment confidence among Krones’ customers. The company experienced weak demand in parts of its portfolio between April and June 2019. However, Krones was largely able to compensate for this due to its broad product range. Order intake from January to June 2019 increased by 1.2%, from €2,014.8 million to €2,038.6 million. Adjusted for acquisition effects, the contract value of orders increased by 0.4% in the first six months of 2019.

Earnings before taxes (EBT) decreased year-on-year in the first half of 2019, from €112.7 million to €47.9 million. The EBT margin dropped from 6.3% to 2.5%. Krones’ profitability was impacted by high material and labour costs. The product mix also had an adverse effect on earnings. In the second quarter of 2019 in particular, revenue was lower than expected on products with a large proportion of own value added, such as machines and lines in plastics technology. That led to capacity underutilisation in this area. Another major reason for the lower earnings is that revenue in parts of the high-margin after-sales business was above 2018 but below budget in the first half of 2019. Krones generated consolidated net income of €33.3 million from January to June 2019 (previous year: €76.9 million). This corresponds to earnings per share of €1.06 (previous year: €2.45).

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

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