Dear shareholders,
2021 was both a positive and a challenging year for Koenig & Bauer. The predominant Covid-19 pandemic manifested itself in a wide variety of different forms over the course of the year. The Management Board therefore consistently concentrated on protecting the health of all employees, supporting our customers and fulfilling our corporate goals. As a team, we achieved this outstandingly well, given that, despite the challenging underlying conditions such as supply chain constraints and the associated increases in the cost of material and energy, we were able to achieve our annual forecast with revenue of €1,115.8m and exceed our EBIT target with a figure of €28.5m, which translated into an EBIT margin of 2.6%.
Our broad product portfolio has proved its merits
In addition to our P24x efficiency program, this performance was materially underpinned by our proven, broad and diversified product portfolio and our balanced global presence. Our products primarily address the structurally growing market for packaging that is not only pandemic-resistant but also offers growth opportunities in view of the boom in e-commerce business and the rising demand for household-size food packaging. In banknote and security printing, the projects currently in the pipeline point to a continuation of the robust business performance in this segment. Our service business, which is becoming increasingly digital, accounted for around 30% of Group revenue in the year under review, with revenue and earnings continuing to grow.
Gradual operational improvements in the segments leads to success
Operating earnings continued to improve from quarter to quarter in 2021. At the end of December 2021, we had an order backlog worth around €807m, which was also high compared to earlier years, reflecting the 32% increase in customer orders over the previous year. At the level of the individual segments, the recovery was particularly evident from the first quarter with strong order intake in the Sheetfed segment. This was followed in June by MetalPrint, which is part of the Special segment and registered one of the best order intakes in its history. The Digital & Webfed segment also showed signs of recovery at the end of July, with a total of five CorruCUT presses successfully marketed. The presses are designed for the highly efficient production of rotary die-cut boxes made of corrugated board with the highest Flexo postprint quality. Securities business, which also forms part of the Special segment, also bounced back in the third quarter with strong order intake. This shows that the banknote has retained its rightful place as a means of payment, especially in the pandemic, and will also remain relevant in the virtual world.
The Digital & Webfed segment achieved a further breakthrough in the fourth quarter with the sale of two high-performance digital printing presses for the packaging market. The RotaJET is unique worldwide and one of the most powerful digital printing systems on the market, on which a wide variety of different substrates, from thin printing paper to solid cardboard, can be digitally printed. Packaging, decorations, posters, leaflets, folding boxes, books or coffee bags – almost anything can be printed with this system. This opens up completely new possibilities for our customers that do not yet exist with other technologies in this form. We have also entered the market for digital film printing with water-based inks together with a global partner. This means that the versatility of RotaJET, which until now has been targeted at the decorative sector, is now also available in the packaging market. In total, more than 20 Koenig & Bauer industrial single-pass digital printing systems, including the HP PageWide T1190 and T1100, have been installed or sold. We made further progress in digital printing in the Sheetfed segment with the world premiere of the VariJET 106 from Koenig & Bauer Durst in mid-October. It combines digital printing with the proven modules of the Rapida platform and was developed specifically for automated, efficient, food-safe printing systems. It offers the shortest makeready times, many different variants and scope for individualisation and enables efficient printing of short runs. In this way, it is addressing growing customer demand for sustainability and focusing on the ability to meet brand-name companies’ requirements with respect to multichannel communications, including e-commerce. With the Rapida 145 and 164, we have launched a new generation of large-format sheetfed offset presses and are thus expanding our already high market share. New product generations have also been released in the Special segment, with the MetalStar 4 and the alphaJET 5X setting new standards in their markets.
Our customers’ investment decisions show that we have done a very good job in recent years and that focusing on growth markets such as conventional and digital packaging printing is paying off.
P24x efficiency programme fully on track
Our P24x efficiency programme, which had already achieved the gross savings forecast for 2021 after nine months, is also making good progress. The necessary one-off costs arising from the four-year programme, which aims at bolstering our competitiveness in the long term in addition to boosting efficiency and scaling the Group, were reduced as a result of the pragmatic partnership aimed at acting in the best interests of the Company with the employee representatives at the locations concerned. We also succeeded in reducing net working capital, which also contributed to an improvement in free cash flow and our net financial position. With a Group equity ratio of around 29% and a free cash flow of more than €250m, we are financially well positioned.
“Exceeding Print” corporate strategy – focus on existing strengths
The resolute continuation of the P24x initiatives will be gradually transferred to the new Group strategy adopted at the beginning of December. We have pooled our corporate goals in “Exceeding Print” by focusing on our existing strengths of sustainability, modularity and digitalisation. In this way, we are driving forward our transformation from a traditional mechanical engineering company to an agile technology group. Based on the global megatrends and intense discussions with customers and experts, we have defined our strategic direction for the coming years. The course it is already taking towards more digitalisation and a higher degree of modularity will not only lead to more success in our core business markets, with packaging printing at the forefront – it will also result in less material and energy being used in printing processes, making them more sustainable. In addition, we are driving forward our agenda for sustainability as the greatest challenge facing the packaging industry in the future and setting ourselves further committed goals in this area. Along with our responsibility towards our customers and employees, as a member of the UN Global Compact, the world’s largest sustainability initiative, we aim to increase even further our efforts to deliver our ecological, social and community responsibilities. We are aiming to reduce the carbon emissions of our production plants by 75% by 2025 and to be completely carbon-neutral from 2030 onwards. With our commitment to our environmental, social and community responsibilities, we are also sending out an important signal to the capital markets.
As the name suggests “Exceeding Print” goes beyond “printing” and describes our future actions. The business models for packaging printing are evolving at high speed and we assume that many of our future customers currently do not yet even exist. We will be developing solutions to address the plethora of new requirements. As it is, we are the only printing system manufacturer to master all industrial printing processes on almost all substrates – including corrugated board – and to provide software, systems and services for end-to-end printing and finishing processes. More than ever before, our customers’ purchasing decisions are being guided by efforts to optimise their total cost of process. In this way, we see ourselves as a trusted advisor for our customers and a pioneer of change and innovation in the printing industry.
2022 will be another year of transformation in view of the currently unforeseeable consequences of the war in Ukraine and the sanctions imposed on Russia and Belarus as a result, the ongoing Covid-19 pandemic and the protracted supply chain constraints. Accordingly, Koenig & Bauer expects a slight increase over the previous year in Group revenue and the operating EBIT margin in 2022. At the date on which the consolidated financial statements were completed, a reliable assessment of the full impact of the aforementioned risks was not possible due to the limited forward visibility, meaning that no precise statement on future development for 2022 can be made.
Medium-term goals confirmed
Koenig & Bauer confirms its medium-term targets of revenue of €1.3bn, an EBIT margin of at least 7% and a reduction in net working capital to a maximum of 25% of annual revenue, which is to be achieved after the completion of the P24x efficiency programme.
As no dividend distributions are permitted during the term of the KfW loan, the Management Board and the Supervisory Board will be proposing to the Annual General Meeting that the net profit generated by the holding company Koenig & Bauer AG be retained. For this reason, we aim to discharge the KfW loan as quickly as possible so that we can resume dividend distributions as we attach great importance to ensuring that our shareholders benefit appropriately from our business success.
Once again, our day-to-day work will be different than usual this year due to the current challenges. In addition to the ongoing pandemic, it will also be influenced by events in Ukraine, the full impact of which cannot currently be estimated. Koenig & Bauer is aware of its responsibility as a good corporate citizen, as an employer of people outside and within Russia and towards its customers in the countries concerned and will make every effort to ease the effects of the resulting conflicts. That said, we have no doubt that our qualified and motivated employees will master this situation perfectly. We thank them for what they achieved in 2021.
We also wish to express our gratitude to our customers, shareholders, suppliers and all business partners for their confidence in Koenig & Bauer. The Management Board is looking forward to exchanges with our shareholders and all other stakeholders in established and new formats. The title of our first annual report summary is “Unboxing” [ənˈbɔːkˌsɪŋ] – a phenomenon of our time that shows like no other the interwovenness of the digital and analogue world. Together, we will tackle it. After all, you’ve already unboxed. And so have we with all the figures, data and stories from 2021.
Würzburg, 22 March 2022
Koenig & Bauer AG Management Board
Dr Andreas Pleßke
Chief Executive Officer