Krones Group Annual Report 2021

Dear shareholders and friends of Krones,

Krones’ positive 2021 financial year is overshadowed by the war in Ukraine. We condemn the invasion of Ukraine by Russian troops on 24 February 2022 as a breach of international law that cannot be excused in any way. How the conflict will develop and what impacts it will have on the global economy are currently hard to predict.

Successful 2021 financial year

The dominant topic in 2021 continued to be the Covid-19 pandemic. This eased as a result of effective vaccines, at least in industrialised countries. With the experience gained since the start of the crisis and the dedication of our entire team, we were able to continue providing customers with top-quality products and services at all times in 2021. This team effort was worth it. Krones can look back on a successful 2021 financial year.

Making use of Krones’ strengths

The global economy recovered in 2021 from the severe Covid slump. Demand also picked up in our markets. It even grew faster and stronger than we expected at the beginning of 2021. Krones is strategically well placed and was able to make use of the positive market conditions. We have a large, innovative range of products and services and have sites and our own teams in over 70 countries around the world. This broad global footprint is extremely valuable, especially in times of travel restrictions.

Digitalisation and sustainability as major growth drivers

The Covid-19 pandemic has accelerated digitalisation, including in our industry. Krones has invested heavily in this growth field and already offers many digital products and services for customers. We continue to push ahead in this area. The digital beverage plant provides our customers with the ideal space for transparent, safe, flexible and efficient production. Further information on Krones’ digitalisation activities can be found on pages 5 to 17 of this Annual Report. On the same pages, we also present interesting information on the topic of sustainability. This is an area where Krones set the industry standard early on. Today, sustainability – like digitalisation – is a key priority for our customers. Both areas are among Krones’ strengths. This is why the motto of our Annual Report 2021 is “sustainable.digital”.

Structural measures take effect – Krones significantly improves profitability

Our business picked up strongly in 2021. After the Covid slump, customers were already beginning to invest more again in the fourth quarter of 2020. Nevertheless, we were positively surprised by the speed and scale of the growth in orders. In total, order intake increased in 2021 by 31% year-on-year to €4.3 billion. This means that the contract value of orders actually exceeded its pre-crisis level. The same is not yet true of revenue. This went up by 9% year-on-year to €3.6 billion. Earnings before interest, taxes, depreciation and amortisation (EBITDA) improved very significantly from €133 million to €313 million. The EBITDA margin, adjusted for one-off items in each year, rose from 6.2% in the previous year to 8.1%. Krones achieved the 2021 targets for growth and earnings – which we already upgraded at the end of the first half year – in each case at the upper end of the target range.

A significant performance contribution came from structural measures that Krones adopted in 2019 and 2020 and continued in 2021. We adjusted capacities, for example, and improved our cost structures. Krones is now more flexible overall. A look at the global procurement markets shows how important that is. Materials are in short supply and prices have risen significantly. Many companies had to interrupt production in 2021 due to material shortages. Krones was able to avoid production downtimes thanks to its international procurement organisation and flexible production processes. In addition, the strategic measures enabled us to at least partly offset the higher material and freight prices with savings elsewhere.

Shareholders to receive dividend of €1.40 per share

Our shareholders are also to benefit from the good earnings in 2021. After Krones paid the statutory minimum dividend (€0.06 per share) last year due to the negative consolidated net income, we intend to pay a dividend of €1.40 per share for the successful 2021 financial year.

Krones is optimistic for the future despite the challenges

Krones came through the 2020 crisis in stable shape and regained the profitable growth trend in 2021. But we also face new internal challenges. With a very large order backlog and production operating at full capacity, completing the machines and lines on time for our customers demands considerable effort from our workforce. That will not be easy given the tight situation on procurement markets and in supply chains, which is expected to continue in 2022. I am sure that our team will once again rise to the challenge. But this will continue to require maximum flexibility over the current year.

To continue providing customers with top-quality, innovative products and services despite the rising material costs, Krones increased the prices of all bottling and packaging equipment and for process technology by 6% with effect from 1 August 2021. Order intake was unaffected by the price increase and remained very high in the fourth quarter of 2021.

Executive Board forecasts profitable growth in 2022

Despite major challenges, there are good reasons to be optimistic for the 2022 financial year and beyond. Based on the positive market trend and Krones’ strong position, the Executive Board expects consolidated revenue to be between 5% and 8% higher in 2022 than in the previous year. Profitability will ­benefit from the improved cost structure and higher selling prices. However, a number of uncertainties also have to be taken into account. These include for example material shortages and problems in global supply chains, and also political risks. In particular, it is hard to predict how the situation in Ukraine will develop and what impact it will have on the global economy in 2022. It is also uncertain how the Covid-19 pandemic will continue to play out around the world. For 2022, Krones forecasts an EBITDA margin of 8% to 9%. Return on capital employed (ROCE) has replaced the working capital to revenue ratio as the third key performance indicator. The target for ROCE in 2022 is 10% to 12% (2021: 10.0%).

Krones adopts ambitious new medium-term targets to 2025

Krones continues to aim for profitable growth beyond the current financial year. We published ambitious new medium-term targets in November 2021. By 2025, we aim to achieve revenue of around €5 billion. In addition to organic growth of 5% per year, this will also include growth from acquisitions. The medium-term target for the EBITDA margin is between 10% and 13%. For ROCE, we aim for at least 20% by 2025.

We can only achieve our targets as a team

The main reason for our confidence in the future despite all challenges is our workforce. Krones has a highly qualified international team who are committed to surmounting all challenges. They demonstrated this impressively under difficult conditions in 2021. On behalf of the entire Executive Board, I would like to take this opportunity to thank all employees for their outstanding dedication in the 2021 financial year. I am sure that, working together as a team, we will master all the challenges and continue to successfully shape Krones’ future.

Christoph Klenk
CEO