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Krones AG lowers its forecast

The Neutraubling-based mechanical engineering company expects a return on sales before taxes of only 1% and not 3% as previously estimated. According to the CEO of Krones AG, Christoph Klenk, the company is cutting more than 500 jobs, including 300 jobs in Germany, and 200 jobs worldwide. This is expected to reduce expenses to around $33 million (€30 million).

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On Thursday, December 12, the Executive Board of Krones AG announced the next tranche of structural efficiency measures. The pre-tax return on sales for 2019 will, therefore, be only 1%, not the previously expected 3%. As already announced, Krones is slashing 500 jobs worldwide, most of them by 2020. That, and abandoning direct printing technologies costs a lot of money.

Measures taken to reduce personnel costs

In addition, the company’s managed laid out the steps that would be taken to minimize costs. The measures to reduce personnel costs and targeted portfolio optimization will result in provisions and value adjustments of around $78 million (€70 million) in 2019. Thus the total expenditure within the already communicated range of $66 to $89 million (€60 to €80 million) will already influence the result in 2019.

Without the charges, the EBT margin for 2019, as previously forecasted, would probably be around 3%.

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A challenging year for Krones

“2019 is and will remain a very challenging year for Krones. We are already back on the right track in terms of order and sales figures,” said Christoph Klenk, CEO of Krones AG. “Nevertheless, we must continue to improve our cost structures and optimize our portfolio.” These measures had a negative impact on the EBT margin for the current fiscal year. However, the positive EBT effects would already compensate for the costs after two years.

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As already known, Krones is cutting more than 500 jobs worldwide. This already began in the current business year. The program will be continued in 2020. In the coming year, a further 300 jobs in Germany and a further 200 jobs worldwide are to be cut in a socially responsible manner. The expenses and provisions required for this amount to around $33 million (€30 million). The reduction affects administrative positions in particular.

The company is also making progress in portfolio optimization. For many years, Krones has been investing in various future technologies for direct printing with ink. In the future, the company will focus on direct printing technology with the greatest market acceptance. For direct printing technologies that are not pursued further, an impairment loss of around $22 million (€20 million) will be incurred.

Portfolio optimization measures

In addition, goodwill is impaired by around $22 million (€20 million). The two impairments do not affect liquidity and have no impact on Krones’ cash flow. The company will be able to announce further portfolio optimization measures in March 2020.

For 2020 and 2021, Krones expects a positive EBT effect totaling around $167 million (€150 million) from the reduction in personnel costs and from the portfolio streamlining and further measures. The impairments and provisions for the structural measures have no effect on the dividend for the 2019 financial year. The dividend will be calculated on the basis of the results excluding these special charges and will be within the customary range of 25% to 30% of the result.

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(Featured image by Drew Beamer via Unsplash)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

First published in Mittelbayerische, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.

J. Frank Sigerson is a business and financial journalist primarily covering crypto, cannabis, crowdfunding, technology, and marketing. He also writes about the movers and shakers in the stock market, especially in biotech, healthcare, mining, and blockchain. In the past, he has shared his thoughts on IT and design, social media, pop culture, food and wine, TV, film, and music. His works have been published in Investing.com, Equities.com, Seeking Alpha, Mogul, Small Cap Network, CNN, Technology.org, among others.

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