Group-wide risk management system

All business activity entails risks which may have an adverse effect on the company’s ability to achieve its targets. At the same time, entrepreneurial activity means consciously accepting risks to act on opportunities for enhancing enterprise value. If risks are not detected, allowed for and addressed, they may pose a risk to the company’s successful performance. 

The Management Board has implemented a Group-wide system for identifying and managing risks so that management is able to respond to the current risk situation by taking early and appropriate measures. This system ensures that possible risks to the company’s business performance are reported at an early stage and their extent rendered transparent and that they are in line with the risk-bearing capacity and the risk tolerance defined by the Management Board. Extreme risks, i.e. risks that may have a very severe effect, but which have a very low probability of occurring, are also addressed. In addition to reporting critical market and corporate developments including details of their possible impact on the company’s results of operations, financial condition and net assets, the risk management system heightens general risk awareness on the part of managers and staff, ensuring that risk assessments are incorporated in the decision-making process and precautions are taken at an early stage to mitigate and avert risks.

The risk management system installed at Koenig & Bauer takes into account “dual materiality”. This means that, in addition to identifying and assessing risks that affect earnings, financial condition and net assets (outside-in perspective), the Group-wide risk management system also systematically detects risks that Koenig & Bauer causes, supports or tolerates and that affect the environment or the general public (inside-out perspective). 

One aspect of Koenig & Bauer’s risk management activities involves identifying opportunities. In contrast to risks, however, they are not recorded in the risk management system described below. Instead, operational and strategic opportunities are documented, evaluated and tracked in the cross-group strategy and planning process. A description of the main opportunities can be found further down in the opportunities report. 

Established risk management process

Koenig & Bauer’s risk management structure is made up of the central risk coordination unit that reports directly to the Management Board, the risk managers in the companies and business units and the managing directors of the group companies that are included in the scope of risk consolidation. The Management Board controls the risk management system at the Group level and is monitored by the Supervisory Board. The risk management system covers the production units as well as the main sales and service companies. The risk owners at the operating units perform semi-annual local risk inventories and submit corresponding reports. The management of the operating units in question then reviews the reports for any omissions and evaluates the risks. 

A bottom-up approach is applied in which possible risks are reported to the responsible executives combined with a top-down approach comprising a list of assumed basic risk defined by the Group. In addition, the owners of the main strategic projects and value-creation processes are responsible for monitoring project and process risks.

In addition to the semi-annual, Group-wide assessment of the risk situation, the Group policy stipulates a duty to report on an ad hoc basis any risks that exceed a defined threshold. In addition, Group Controlling, on behalf of the Management Board, prepares impact analyses based on defined scenarios for current exogenous situations with a potential impact on the order situation, project execution and Group earnings. 

The Group’s risk management policy documents the tools, processes, relevant factors, reporting channels and risk categories. The Koenig & Bauer Group’s risk management system is based on the provisions of German company law and the German Accounting Standards as well as the principles and models of the Institute of Internal Auditors (IAA) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Systematic handling of risks creates high transparency for pre-emptive, goal-oriented action

For the purposes of more accurate coordination of risks as well as risk-avoidance and mitigation measures, risk is calculated as a negative deviation from an expected figure. This approach systematically tracks risks that are already included in corporate planning as well as additional latent risks that are not accounted for.

Due allowance is made for the risk mitigation precautions already established, after which net risk is quantified according to probability and potential impact on Group earnings on the basis of clearly described scenarios. The underlying assessment period extends to the end of the year following the reporting year. A standardised approach is applied to achieve a systematic and uniform evaluation of risks. Quantitative or qualitative risks which either individually or together with other similar risks exceed a value of €0.5m and a probability of 10% are reported to the Management Board. These risks are aggregated in risk groups according to the following matrix and classified as low, moderate or significant on the basis of the combination of two dimensions “Impact on Group earnings” and “Probability”. Particular attention is paid to risks with a high or very high impact on Group earnings or with a possible or high probability. Furthermore, risks that may have a very high impact on the Group’s earnings (extreme risks) but exhibit a comparatively low probability are also analysed in qualitative terms in the risk management process and any necessary measures defined on this basis.

The risk management system is supplemented with monthly Group reports as well as the established and additionally enhanced operational management elements. You can find further information on this in the section on planning, management and control in the chapter entitled “Basis of the Group”.

The risk early detection system pursuant to section 91 (2) of the German Stock Corporation Act installed as part of the risk management system by the Management Board is reviewed annually by the external auditor in accordance with statutory requirements for adequacy and implementation and discussed regularly by the Supervisory Board’s Audit Committee. Internal auditing oversees the reporting process and checks it for plausibility.

Description of risks

The following section describes the material risks to which the Group is exposed. In the absence of any indication to the contrary, they are equally relevant for all segments. For the purposes of Group reporting, individual risks are aggregated in risk groups, which in turn are divided into the following categories: business risks, financial risks, operational risks and other risks. The order in which the risk groups are described within the categories reflects the risk assessment per risk group calculated on the basis of the individual risks. Risks with a higher risk assessment precede those with a lower risk assessment. The risk assessment is based on the combination of the two dimensions “Impact on Group earnings” and “Probability”.

Business risks

Sector risks

Industry conditions may affect demand for products and services as well as the business performance of the Koenig & Bauer Group. Changing ordering practices on the part of customers or innovations or repositioning by competitors may impact the performance of individual business segments to varying degrees.

The customer structure, which is dominated by government bodies tied by mostly political decisions, limits forward visibility in security printing business, something that gives rise to corresponding capacity and financial risks. Despite the moderate growth expected in global banknote production over the next few years, the Koenig & Bauer Group’s large share of the market limits its scope for any increase in revenue from printing presses.

Competitors often grant considerable price concessions on sheetfed offset presses and in the security printing segment, which may impede sales of products and acceptance of the price increases that have been imposed in the last few months in response to higher inflation rates. Koenig & Bauer considers this practice to be problematic if it means that production costs are not covered as a result. Such practices are rejected as they are considered to have a long-term adverse impact on the industry’s ability to innovate. At the same time, such conduct makes it more difficult for us to achieve the targets we have defined for order intake and project profitability. Further risks can be seen in the potential (re-)entry of competitors into markets addressed by Koenig & Bauer as this may heighten the competitive pressure on the Group. This is especially true in Asia, where the market for printing presses is currently growing at the greatest rate and competitors have set up production facilities or are planning to do so, potentially allowing them to offer machines for this market at a discount. The Koenig & Bauer Group relies on forward-looking innovations and the highest quality standards that are implemented at its German and European production sites. Its strategy is to boost competitiveness and profitability on a sustained basis by offering customers bespoke solutions and by simultaneously continuing to optimise structures and production costs. By actively presenting and communicating the technical advantages of its products and services for customers, it is able to secure reasonable premiums on its prices. At the same time, clear sales targets and ongoing checks support efforts to ensure sustainable pricing for new and used presses.

From the third quarter of 2023, there was a noticeable decline in order intake, particularly in the sheetfed segment as a reaction to above-average ordering by key accounts during the pandemic. In order to avoid idle times and to bridge this period in a cost-efficient manner, short-time work was adopted and approved at short notice and on a small scale for the affected departments of the Group.

In summary, the sector risks are considered to be significant in the light of the measures that have already been taken to address them. The risk assessment has thus deteriorated by one category compared to last year’s report. With our diversified product range, which targets different industries, it is possible to compensate for risks in individual industries across the Group. One main task is to continue transforming the range into relevant future markets by developing new products and applications. Particular attention is being paid to the further development of digital products. In particular, Koenig & Bauer supports key account and brand owner management, which is established as a group function.

General economy and industrial risks

Koenig & Bauer’s business is exposed to global economic conditions. Economic activity and growth in sell-side markets, changes in the value of the euro against other major currencies and interest rates on borrowings may adversely affect product sales and capacity utilisation, as well as forecasts and budgets. Uncertainties also arise from long-term transformation processes in the population with possibly significant effects on the economy and society. Risks are increasingly arising from the stricter climate policies, the heavy debt loads in many economies and the persistent geopolitical tensions. The currently perceptible deterioration in international trade relations and protectionist tendencies in some countries may particularly lead to trade restrictions. This may have an impact on exports of the German economy, which is traditionally dependent on international trade. 

Furthermore, macroeconomic risks arising from global inflation can still not be ruled out, with monetary policy measures taken in response, such as interest rate hikes, making it more difficult for customers to raise finance for projects. We see moderate risks to the Koenig & Bauer Group’s future business performance on the basis of the macroeconomic assumptions underlying the forecasts.

To address these risks, the measures taken under the P24x efficiency programme to enhance operating profitability and long-term competitiveness remain in place. At the same time, the company’s strategic orientation is regularly reviewed. With its “Exceeding Print” corporate strategy, Koenig & Bauer is responding to global megatrends and resolutely continuing on the path it has already adopted towards greater digitisation, sustainability and modularity.

Sell-side risks arising from regional fluctuation in demand are minimised by the continuous optimisation of the international sales and service network in the markets of the future. The key account and brand owner management established as a group function also plays a strong role in meeting these risks.

Business environment

Changed location-based factors such as infrastructure, environmental regulations and taxes or political decisions such as legislative or regulatory changes can render business activities more difficult, expensive or impossible. It is possible to keep risk low by observing the business environment and taking pre-emptive action, such as adapting internal processes, products and purchasing and manufacturing strategies in good time.

Financial risks

Credit and country risks

Special attention is paid to receivables risks. Against the backdrop of possible interest rate hikes in response to inflation or the possible aftermath of the Covid-19 pandemic, it is still conceivable that there will be an increasing number of insolvencies and payment disruptions which are not yet apparent today due to the availability of development loans and loan-repayment holidays. In addition, the high volume of individual projects with government contractors may yield risks for Koenig & Bauer, particularly in security printing business.

Many printing companies face considerable obstacles in obtaining credit-based finance for capital spending projects as loans are only granted subject to a relatively high risk premium in this sector. In line with customary market practice, Koenig & Bauer must therefore offer sales finance to assist customers in the Sheetfed segment in particular in funding their capital spending projects. In these cases, the company works, for example, with banks or leasing companies to ensure customer-specific risk transfer on a case-by-case basis.

Credit checks of customers as well as creditworthiness reviews are performed in the event of any financing risks. Standard measures for addressing possible payment default risks include government export credit insurance as well as requests for predelivery collateral. After delivery, Koenig & Bauer reserves ownership until full payment is made. Proactive receivables management ensures an appropriate response to counterparty and country risks. Sufficient impairments and provisions have been recognised to cover potential defaults, buyback obligations and the recovery of used presses. There is no customer or regional clustering of credit risks. Management receives regular breakdowns of receivables by maturity and region. In this way, it is possible to detect any risk concentration at an early stage and to take suitable precautions. In view of the measures taken and the expectations of market developments, risk is considered to be moderate.

Risks from measurement of assets and liabilities

Management has discretionary powers in the application of accounting policies. Future developments must be estimated if no market prices are available for the measurement of assets and liabilities. This fundamentally results in the risk of remeasurements becoming necessary in subsequent financial years. This applies, for example, to provisions for retirement benefits, which are measured on the basis of underlying interest rates. Due to the high volume of goods and services exchanged within the Group, risks may arise from the determination of taxable profits in the event of a subsequent correction to intra-Group transfer prices by the tax authorities despite the reliance on worldwide tax advice and close cooperation with the responsible tax authorities. There is a moderate overall risk potential. Compared to the previous year, value at risk has deteriorated by one category.

Liquidity risks

Liquidity risk is the risk of not being able to meet existing payment obligations on time due to insufficient liquidity or exhausted credit facilities. Ensuring solvency requires maintaining sufficient liquidity resources against the backdrop of existing risks. Koenig & Bauer mainly generates funds from prepayments.

In October 2023, Koenig & Bauer successfully refinanced the existing syndicated loan. The new syndicated facility replaces the existing arrangements, which were due to expire at the end of 2024. This also means that the restrictions under the previous KfW loan will no longer apply. In addition to a revolving cash facility of €300m, the syndicated finance includes a guarantee facility of €200m. The credit facilities have a tenor of five years, meaning that they will expire in October 2028, subject to a two-year renewal option in agreement with the borrowers. To highlight the importance that Koenig & Bauer attaches to sustainability in its funding operations, the agreement now provides for an ESG rendezvous clause in addition to the usual Loan Market Association (LMA) requirements. This is to be implemented in 2024, subject to the consent of all parties involved.

The facility is primarily being drawn on to fund current business and a large part of the investments and to prefinance working capital. The guarantee credit facilities are required as collateral for customer prepayments among other things. 

Liquidity risks are hedged by means of Group-wide roll-over liquidity planning. The short-term solvency of all Group companies is tracked and controlled in a daily liquidity status. In addition to Group-wide cash management, an updated Group liquidity and finance plan is prepared complete with reports in short intervals. This rolling planning system covers a period of twelve months and is extended to up to 24 months at regular intervals. 

As well as the syndicated credit facility, the Group-wide financing framework includes further bilateral credit lines. Local guarantee credit facilities continue to exist on a significant scale. Unforeseeable cash flow fluctuations in operating business can be bridged with the financial resources available.

Some of the loan agreements entered into within the Koenig & Bauer Group contain provisions that enable the creditor banks to manage credit risk. These financial covenants are customary in the market, follow corresponding standards and are structured on the basis of the current and expected future economic situation. On the basis of the current target figures, these financial covenants do not have any negative implications for Koenig & Bauer.

Despite the detailed planning and ongoing monitoring of incoming and outgoing payments, moderate liquidity risks are seen as having a low impact on Group earnings.

Interest and exchange rate risks

Exchange-rate fluctuations and interest-rate changes may expose the Koenig & Bauer Group to financial risks. Koenig & Bauer holds financial instruments whose fair value and the resultant cash flows are influenced by market interest rates. In selected cases, derivative financial instruments are used to hedge or eliminate any risks. The nature, scope and market value of the financial instruments used are disclosed in the notes to the consolidated financial statements. On the basis of the loan agreements entered into, the company currently considers interest and exchange-rate fluctuations to pose only a minor risk as invoices are mostly issued in euros and in view of the financial instruments used.

Operational risks

Procurement and logistics risks

Risks in the supply chain cannot be ruled out in view of the prevailing uncertainties over the availability of materials from suppliers, e.g. critical electronic components such as semiconductors for controlling the printing presses. These can impact Koenig & Bauer in the form of long delivery times and high purchase prices.

In the absence of alternative options, short-term shortfalls in supplies may lead to production stoppages and delays in our own deliveries with negative effects on capacity utilisation and earnings. In addition to close market monitoring and extensive supply chain management, which includes monitoring the quality and reliability of key suppliers, the risks of disruptions to the production process are addressed by means of detailed demand planning and control processes at the Group level. Koenig & Bauer pays particular attention to ensuring backup solutions for single-source suppliers. Strategic and critical components are manufactured in-house or sourced under long-term supplier relationships.

Price risks, which could persist in the case of parts with limited availability, are addressed by Group-wide category management with bundled purchasing volumes and by long-term supply contracts. On the basis of the existing supplier relationships, no significant price increases are otherwise expected. Through close cooperation and regular audits with suppliers, Koenig & Bauer continuously improves the quality of the delivered parts. The quality and backlog rates recorded in supplier management are within the expected range.

Given the mounting deterioration of international trade relations together with protectionist tendencies, the risk of geopolitical incidents or of decoupling has steadily increased over the last few years. Following a review of critical supply chains and adjustments to sourcing strategies, the company will be reducing its exposure to suppliers and countries in the future and lowering the effects of possible procurement-side trade restrictions by diversifying supply chains.

Koenig & Bauer sees risks with regard to energy prices and energy supply as unchanged. In view of these uncertainties, it adapted its energy infrastructure in the light of the prevailing conditions in 2022 by installing mobile standby power plants to avert unforeseen fluctuations in the electricity grid and fully substituted process gas with an energy mix consisting of LPG, heating oil and district heating, among other things. In this way, its own production is largely safeguarded at all European plants even in the event of any gas shortages.

Taking into account the measures described, the procurement risks are currently classified as moderate.

IT risks

Society’s growing dependence on technology and the increasing online networking of information systems increases the risk of intentional or unintentional damage to the Group through the exploitation of vulnerabilities in the IT products and systems used. The consequences of unauthorised internal and external access may include disruptions to the availability of work and production systems and supply chains, data theft, blackmail and sabotage or damage to the Koenig & Bauer Group’s image. In particular, “CEO fraud”, which criminals use to prompt employees to transfer large sums of money, is increasingly spreading. A successful risk strategy is established by training employees and heightening awareness of such matters.  

In recent years, the digitisation process has accelerated significantly and spurred innovations and changes to business models, such as online sales and service, or impacted working methods such as mobile working for the Group’s employees. This is reinforcing the need for IT security and a defence response to cyber risks. These risks are addressed through policies and defined IT processes, compliance with common IT security standards, various lines of defence and the implementation of IT security programmes by a Group-wide Chief Information Security Officer (CISO). In addition, there is adequate insurance cover for cyber risks, including a possible interruption to business

Following the Group-wide roll-out of the SAP ERP system, the Koenig & Bauer Group is exposed to risks with regard to the smooth phasing-out of legacy systems and the migration of business processes to the new system. To mitigate these IT risks, Koenig & Bauer utilises the services of renowned software consulting companies and has installed an SAP project group. If the legacy systems are not replaced and the ERP software is not installed on time and free of any disruptions, the resultant restrictions to operations or cost overruns for the SAP roll-out project may have considerable financial consequences. In order to reduce these risks, the rollout at the operating companies will be executed successively and on the basis of a uniform platform. In view of the successful rollout of the system at the first few companies, the experience gained from similar complex projects and the high degree of involvement of external experts, the company sees no discernible risks beyond the usual project risks. The existing IT risks are generally considered to be moderate.

Human resource risks

Corporate success hinges materially on motivated and highly qualified engineers, specialists and executives. In the current employment market, there is a risk that it will not be possible to attract and retain the necessary qualified employees and to assemble a suitable group of management trainees. Especially in areas requiring frequent travel, there is a risk of no longer being able to fill all the required positions with trained and experienced employees. As a result of demographic change, a growing number of highly qualified employees are reaching retirement age and leaving the company. On the other hand, it is becoming increasingly difficult to retain suitable skilled workers and junior staff at Koenig & Bauer due to the shortage of skilled workers and the lower number of school leavers.

This risk is being actively addressed by significantly expanding vocational training at the state-approved Koenig & Bauer vocational schools. Koenig & Bauer registered a record number of apprentices in the 2023 intake, a situation which is to be continued in 2024. For more than 150 years, Koenig & Bauer has been preparing industrial/technical apprentices for their future careers by closely interlinking theory and practice and using state-of-theart technology. This also includes training for commercial and IT professions as well as dual study programmes.

Further essential building blocks for improving employee retention include a wide range of measures for improving employees’ work-life balance, e.g. mobile working, flexitime, flexible working time models such as part-time work and reduced full-time working hours, holiday care or the possibility of sabbaticals as well as other social benefits including company pension schemes, the company’s own health insurance scheme and canteen, various mobility offers, etc. The next generation of specialists and executives are being prepared for their future tasks in trainee and further development programmes as well as the Koenig & Bauer Academy, which offers more than 1,000 training courses, together with long-term development plans. At the same time, the company is working on improving its external image as an attractive and innovative employer. In addition, the production, service and sales companies both inside and outside Germany, have access to specialists whose growth potential is regularly reviewed.

Instruments such as working time accounts or leased employees are available to address customers’ demand for short delivery times and also to temporarily cushion fluctuations in capacity utilisation at factories. If employees are unwilling to accept flexible working hours or qualified external staff are not available in peak-capacity periods, there is a risk that customer orders cannot be executed within the required period and, hence, that orders may be lost or delays experienced. Similarly, there is a risk of existing capacities generating empty costs in the event of utilization shortfalls due to missing parts. However, this can be mitigated in the short term by reducing overtime and the number of leased employees used. 

In view of the precautions that have been taken and current conditions in the job market, the personnel risk is assessed as moderate.

Research and development

Koenig & Bauer regularly invests substantially in the development of improved or entirely new products and processes in order to preserve its competitiveness, satisfy market requirements and gain new customers. This gives rise to risks with respect to technical implementation and feasibility as well as ultimate market acceptance of the new or revised products. In particular, there is a risk that it may not be possible for the expenses incurred to be recouped from sales of the products and services developed, thus adversely affecting the return on investment. Risks are addressed in a stage-gate process with appropriate analyses of market requirements before development begins, continuous profitability and risk assessments during development and marketing activities in the course of the product launch. Any necessary impairments are recognised for capitalised development costs that are not considered to be recoverable. Comprehensive project and quality management as well as practical testing with beta users have been established to reduce technical risks. The resulting risks are currently considered to be moderate due to the measures described above to mitigate risk and despite the recently accelerated launch of new products and entry into new markets.

Planning, control and monitoring

Group targets and annual budgets are based on assumptions that are subject to uncertainties. For the purposes of sales planning, volumes with corresponding margins are defined as the basis for the companies’ capacity and resource planning. Among other things, budgets include expected increases in pay scales and the cost of materials as well as the savings achieved as a result of planned improvements. There is a risk that the assumptions underlying the plan do not fully materialise, contrary effects occur or there are delays in the implementation of the necessary measures. In addition to constantly monitoring and analysing the business environment, the risk is addressed by means of regular budget reviews during the preparation of the forecast and efficient management of the operational business and strategic projects.

Short-term fluctuations in capacity utilisation at the plants due to volatile order intake can have a negative impact on profitability. Accordingly, the necessary production capacities are regularly checked and, as far as possible, coordinated with short-term sales planning. Furthermore, flexible working hours and leased employees are used to adjust capacities dynamically in the light of the order situation.

A moderate risk is seen in the fact that the assumptions underlying plans may not materialise in the expected form or that savings potential taken into account in the planning phase cannot be fully realised.

Customer centricity

End markets demand a high degree of innovation and bespoke solutions. Customers’ requirements and preferences are changing all the time. For this reason, it is of decisive importance to detect technical trends and customer requirements and to align the product range, services and sales structures to these in good time. There is a moderate risk of lost revenue if customer requirements are not recognised or are not integrated in Groupwide processes early enough.

Acquisitions and alliances

Acquisitions and alliances may occur in the course of strategic development in future markets. The purpose of such activities and expenses is to achieve an appropriate degree of economic viability for the Group by means of a product portfolio oriented to future requirements. However, this may cause considerable acquisition and follow-up costs. For this reason, careful advance analyses are necessary and are often carried out with external support. The ensuing integration of acquisitions involves risks associated with the harmonisation of company cultures or the combination of processes and systems that may result in the loss of expertise or unplanned additional expenses. The risk of such activities resulting in unforeseen costs is considered to be moderate. This also applies to the risk of the expected positive impact on business failing to eventuate or not eventuating within the planned time period.

Production risks

Poor quality, rejects and missing parts can result in production and assembly risks. A temporary surge in demand may cause delays in the delivery of individual components. A delivery delay or contractual non-compliance for which Koenig & Bauer is responsible may result in contract penalties or customer credits, thus impairing margins. This also leads to an increase in risk if production is shifted to smaller quantities or to parts that are particularly prone to errors. Koenig & Bauer has a central quality assurance department that defines Group-wide processes and standards, which are then implemented in all plants and relevant corporate divisions by local quality departments. Continuous quality controls based on standardised processes systematically analyse sources of error and optimise production processes. Internal schedule management is based on regular coordination of schedules and a reporting system. Cost control and management entails periodic cost reports, which are based on a cost accounting system together with structured processes for planning, forecasting and variance analysis. To optimise the entire supply chain so as to permanently reduce delivery times, Koenig & Bauer is working on operational and strategic adjustments to the internal production network to reduce costs and lead times and to increase productivity. The ability to additionally reduce quality costs for technically complex products in the long term has a major impact on earnings. In the light of all the precautions that are in place, exposure to production risks is considered to be moderate. The risk assessment has thus deteriorated by one category compared to last year’s report.

Infrastructure and processes risks

The risk of an interruption to our business cannot be completely excluded. Production delays due to failures or interruptions of individual production facilities or technical infrastructure can have a negative impact on production efficiency and leave noticeable traces on business. Koenig & Bauer therefore regularly evaluates and audits production sites with external support and covers fire, severe weather and other risks with appropriate property and selected business interruption insurance. As part of maintenance management, possible vulnerabilities are analysed and preventive measures improved to ensure the availability and operational safety of Koenig & Bauer presses. This limits unplanned outages and plant shutdowns as well as the associated costs. Overall, the infrastructure and process risks are considered to be low.

Contract fulfilment risks

In the case of complex mechanical and plant engineering orders, contract fulfilment risks cannot be entirely ruled out. A failure to deliver in accordance with the contract, a delay in delivery or a breach of ancillary obligations for which Koenig & Bauer is responsible may result in a reduction in margins due to contractual penalties or concessions made to the customer. Delays for which the customer is responsible, such as the completion of print shop buildings, may have a negative impact on incoming payments and the recognition of earnings. In addition to professional project management and the ongoing optimisation of internal coordination and quality assurance processes, the company addresses this risk by drafting the contracts appropriately. Accordingly, we consider this risk to be low.

Other risks

Disasters and force majeure

Koenig & Bauer is exposed to risks arising from epidemics and pandemics, natural and environmental disasters and social unrest. Due to the highly globalised and interconnected world, local disasters may have a major impact on the Koenig & Bauer Group’s business. Following the end of the Covid-19 pandemic, no significant risks have currently been identified in this connection. Nevertheless, the Koenig & Bauer Group is now aware of this issue. Developments and risks are monitored proactively (top-down); immediate reactivation of the measures established during the pandemic is thus ensured. In addition, the scope for mobile working has been maintained even after the pandemic. The sudden emergence of pandemic pathogens cannot be entirely ruled out.

Furthermore, direct damage from natural and environmental disasters such as natural hazards is covered by insurance as far as possible and economically reasonable. Overall, the possibility of a risk arising from disasters and force majeure is considered to be low. There was an improvement over the previous year.

Legal risks

Koenig & Bauer is subject to a wide range of legal and statutory regulations. The breach of contracts, licensing provisions or intellectual property rights, the negative outcome of legal disputes as well as the failure to observe regulatory requirements may cause considerable financial damage in the form of penalties, compensation payments, sanctions or reputational damage. Existing and threatened legal disputes are therefore continuously tracked, analysed, evaluated to determine their legal and financial effects and taken into account in the recognition of provisions in cases in which an obligation is likely. The size of such provisions is very largely based on estimates, e.g. in the case of litigation. They are continuously reviewed in quarterly litigation reports and adjusted in good time in the event of any changes. The Group is not involved in any legal or regulatory proceedings that are not subject to subsequent mitigation measures in accordance with these principles and thus pose risks to its overall economic situation. Generally speaking, the risk of litigation and administrative proceedings with a negative impact is low, although the exposure of globally active mechanical engineering companies to legal risks cannot generally be ignored. Koenig & Bauer addresses this risk by using standard contracts and comprehensive legal advice from internal and external experts in non-standard business transactions. In addition, the established compliance management system is aimed at identifying and pre-emptively addressing legal risks at an early stage. 

Damage to image

In technically demanding capital goods business there is always the latent risk of barely quantifiable harm to the company’s image arising in the event of quality problems, breaches of industrial property rights or the like. At present, there are no notable risks to the Group’s image.

In total, the related risks are below the threshold of the preceding risk matrix and are therefore not listed there.

Summary of the risk situation

As in previous years, Koenig & Bauer has taken sufficient account of the ongoing challenging macroeconomic conditions, global inflation and high interest rates, geopolitical tensions, particularly the Ukraine-Russia war, the conflicts in the Middle East and the simmering China-Taiwan conflict. Given this persistently volatile environment, the slight improvement reported in the previous period has now given way to a deterioration in the risk assessment and thus heightened Group-wide risk potential for the Koenig & Bauer Group compared to the previous year.

The Group has sufficient risk-bearing capacity in the light of the current challenges and the associated risks. As things currently stand, we do not see any risks that either individually or cumulatively are liable to jeopardise the Koenig & Bauer Group’s going-concern status. The broad-based product range, which is geared to fundamentally intact sell-side markets, the continued successful implementation of the defined efficiency measures as well as the Koenig & Bauer Group’s strong market position and financial stability limit the risk potential.

Underpinned by ongoing efforts to optimise risk management, risk awareness within the Koenig & Bauer Group is improving steadily. Detailed and comprehensive risk reporting improves the scope for tracking risk-mitigation precautions and for encouraging a responsible approach to opportunities and risks within the company on a sustained basis.

This risk report is necessarily based on available information as well as expectations and estimates believed to be true at the time of reporting and refers to future trends. It is not possible to exclude other or additional risks which may have an influence of the Group but are currently not known or believed to be significant. Moreover, risks may change during the forecast period, resulting in a significant discrepancy in the estimate presented here.