Krones, a leading manufacturer of filling and packaging technology, achieved its 3% growth target in 2019 despite the difficult overall economic environment. Revenue increased by 2.7% year-on-year, from €3,854.0 million to €3,958.9 million.
The company’s order intake improved by 3.2%, from €3,957.3 million in the previous year to €4,083.5 million in 2019. Krones benefited from a strong year-end. The contract value of orders was up 10.7% year-on-year in the fourth quarter of 2019. At the end of 2019, the company had orders on hand totalling €1,385.7 million. This exceeded the already high prior-year order backlog of €1,261.1 million by 9.9%.
Krones’ earnings were hit in 2019 by high cost increases, especially for labour. The product mix also had a negative impact on profitability. In the first half year, the company had poor production capacity utilisation in plastics technology due to temporarily weak demand. Consolidated earnings before taxes (EBT) decreased from €204.3 million in the previous year to €41.7 million in 2019. The EBT margin dropped from 5.3% to 1.1%. It should be noted in this connection that Krones recognised provisions and impairments totalling around €70 million in the fourth quarter of 2019 for measures to cut personnel expenses and streamline the portfolio. About €30 million of this relates to expenses and provisions for the job reductions in 2020. Impairment losses totalling around €20 million were incurred for certain direct printing technologies that Krones is partly not pursuing further. A further amount of approximately €20 million relates to goodwill impairments. Without these expenses the EBT-margin would be 2.8%. As a result Krones is in line with the revised margin target of around 3% published in July 2019.
Mainly because of the new IFRS 16 accounting standard and the impairment losses, Krones’ depreciation and amortisation rose substantially in 2019 to €183.3 million (previous year: €102.7 million). EBITDA, which is unaffected by this, decreased less sharply than EBT in 2019, falling from €305.9 million to €227.3 million. The EBITDA margin was 5.7% (previous year: 7.9%).
High working capital reduces free cash flow
Free cash flow went down in the full year 2019 to a negative €94.4 million (previous year: positive €120.7 million). The reduction in free cash flow was mainly due to higher working capital at year-end. However the average working capital over the past four quarters as a percentage of revenue decreased from 27.3% in the previous year to 26.9% and was slightly above the 26% targeted for 2019. Net cash and cash equivalents, meaning cash and cash equivalents less bank debt, came to €38.1 million at the end of the reporting period (previous year: €215.1 million). The equity ratio was 41.3% (previous year: 43.2%). Overall, Krones continues to possess a robust financial and capital structure.
The company states that all stated figures are preliminary and are subject to change in the course of auditing by the independent auditors.
Krones publishes its Annual Report for 2019 and outlook for 2020 on 19 March 2020. On the same day, the company will also provide further details of structural measures to secure sustained improvements in Krones’ efficiency and profitability. Krones says that it is making good progress with implementation of the measures, which include a reduction in the workforce. The Executive Board is confident that the measures will already have a positive impact on earnings in 2020.