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.
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.
(Featured image by Drew Beamer via Unsplash)
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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.
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