Krones AG in crisis

Krones AG in crisis
The year 2009 was dominated by the global economic crisis. As a consequence, the 2009 business year was for Krones AG, the world´s market leader for beverage filling and packaging technology, probably the most difficult in the company´s 59 years of existence.

Demand in the packaging machinery market fell worldwide by more than 25 %. With the exception of China, all regions were affected by a significant decline, particularly North and South America, and Eastern Europe and Russia.

Order bookings at the Krones Group fell in 2009 compared to the previous year by 18 %, to 1,916 million euros (preceding year: 2,326 million euros). Not until the fourth quarter of 2009 was there any discernible turnaround in the ordering patterns of Krones´ clients, with a plus of 10 % compared with the already weakened fourth quarter of 2008. This meant the order backlog on 31 December 2009 totalled 888 million euros (preceding year: 837 million euros).

As a consequence of weaker order bookings, consolidated sales in 2009 fell by 22 % compared with the record year of 2008, to total 1,865 million euros (preceding year: 2,381 million euros). On the basis of the order bookings, Krones does not anticipate any reversal of the trend in terms of sales until the first half of 2010.

Profitability in the Krones Group was crucially affected by the consequences of the economic crisis, due to the sheer rapidity of the trend reversals concerned. Although the Executive Board had already launched the "Conversion" programme at the end of 2008, designed to revamp the entire company to cope with the shrinking markets, Krones in 2009 achieved a consolidated result of minus 34.5 million euros (preceding year: plus 106.5 million euros).

Krones´ rock-solid financial position has proved its worth, constituting a crucial safety factor in the global crisis. Despite the loss recorded in the 2009 business year, the company upped its free cash flow by 5 % to 83 million euros.

On the reporting date of 31 December 2009, the Krones Group had no debts with banks, and in addition possessed liquid funds (net cash) amounting to more than 135 million euros (preceding year: 107 million euros).

Future developments in the global economy overall are anybody´s guess, with prognoses ranging from optimistic to critical. Due to the multilayered global interdependencies involved, there are no verified trends or prognoses pointing unequivocally to what is going to happen.
The long-term growth prospects for Krones continue to be good, since the mega-trends are auspicious for the company´s chosen sector. Global population continues to increase, affluence in many countries is rising, with concomitantly expanding consumption. Eating and drinking are numbered among all people´s basic needs. These requirements, plus the imperative for Krones´ clients to ensure increasingly distinctive differentiation at the point of sale in the industrialised nations, are generating an exploding multiplicity of new containers and packaging forms, leading to dynamically increasing complexity in the value creation chain. This has to be mastered. Krones covers this need comprehensively with its portfolio of products and service.

Krones has learned lessons from the crisis, will be mobilising further identified potentials with its "Conversion" change management programme, which stands for "rethink and revamp" and is readying itself to cope with more volatile markets.

In view of developments over recent months, Krones is cautiously optimistic for 2010. The company anticipates a turnaround in the overall trend for the first half of 2010, with a concomitant increase in sales during the 2010 business year of 5 % to 15 %, plus a return to significant positive results.

All figures are provisional, and are subject to auditing and approval of the financial statements by the supervisory board. The complete annual financial statements will be published on 27 April 2010 and presented on this date at the balance sheet press conference.

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