Koenig & Bauer : Annual Report 2023, 27.03.2024

Annual report 2023

Annual Report 2023
Index
4	Letter to the shareholders
7	Supervisory Board report
12	The Koenig & Bauer share
15	Combined management report
53	Group financial statements
117	Remuneration report
141	Non-financial Group report
177	Additional information
3

Contents

Letter to the shareholders

and packaging waste". As an element of the European Green Deal, the law aims to help reduce packaging waste in the EU member states, stipulating that packaging is to be fully recyclable by 2030.

Dear shareholders,

As so often in the course of history, we are currently experiencing a phase of great upheaval that is changing the world around us at an ever increasing pace. Like virtually all manufacturing companies, Koenig & Bauer also faces geopolitical and macroeconomic tensions, which are being additionally amplified by a variety of challenges such as the shortage of skilled work-ers, higher energy costs and disrupted supply chains. Although we are able to influence these developments to only a limited extent, we can make an important contribution to shaping the future by acting as a reliable partner in our role as an innovation leader in the printing industry, underpinned by our technical expertise and our broad product portfolio.

Sector focus on digitisation and services

The fact that our customers have increasingly opened up to digital printing and that digitisation is becoming increasingly important is also an encourag-ing sign. This is a trend that we have been observing for some time and which we believe will continue to grow in importance. Here as well, Koenig & Bauer recognised the signs early on, taking a number of measures to provide our customers with a wide range of products today. However, as with the focus on sustainability, digitisation is not an end in itself for the industry and is not driven solely by regulatory factors. Rather, it is obvious that incorporating these and future developments in production processes must not - and will not - be to the detriment of our customers' profitability.

Sustainability seen in "uni:versal" terms

Sustainability is no longer just a issue solely for individual companies seeking to reduce their environmental footprint. Rather, a changed sense of responsibility has made sustainability an all-encompassing phenomenon. Companies that are aware of this social transformation process and align their own actions to the new needs of consumers stand to benefit from this change. The ability to metamorphose, i.e. to constantly change, is of elementary importance for companies when it comes to remaining compet-itive. Koenig & Bauer has proven this time and again in its history spanning more than 200 years. Thus, rather than resting on its laurels and remaining with newspaper printing presses, it has completed a successful metamor-phosis, which has now made Koenig & Bauer a packaging printing compa-ny with printing expertise covering almost all substrates and all printing technologies. Today, Koenig & Bauer prioritises agility, speed and flexibility, as well as proximity to its customers. It is with this in mind that this Annual Report, whose flexible packaging is 100% compostable, has also been pre-pared under the motto "uni:versal".

Koenig & Bauer's forward-looking orientation has led to its transforma-tion into a packaging printing company whose solutions for the packaging industry already account for the largest share of its total revenue and is set to generate further impetus for growth in the near future. This is indicated by a legislative initiative of the European Commission, which was launched at the end of 2022 under the name "Proposal for a regulation on packaging

Global economic growth is currently as diverse and disparate as the needs of our customers from all over the world. Impetus for dynamic growth can be seen in some of our target markets in Europe and the United States. Yet, the true drivers of the global economy are located in Asia, especially in India and individual countries in Southeast Asia. As well as this, there are growth markets in Latin America holding great promise for the future. This is due to a growing middle class, which is expanding at disproportionately strong rates in these regions of the world. However, increasingly national political agendas are also set to generate further impetus for growth. At the same time, it should not be forgotten that this year around 4.2bn peo-ple - corresponding to more than half of the world's population - will be electing new governments in their countries.

People at the core

In spite of all the geopolitical and global economic adversities, we must not lose sight of the human factor. After all, employees are the company's most valuable asset. Indeed, they have made Koenig & Bauer what it is today: an internationally leading technology company that meets the zeitgeist with its broad and innovative product range and at the same time influences the everyday lives of a large part of the world's population. In order to maintain this leadership role as we move forward, it is crucial for us to find quali-fied employees and to retain them in our business operations by offering attractive benefits. This also includes conducting further education for existing staff and giving young people an opportunity to participate in the

transformation process. The fact that we have almost doubled the number of apprentices in our business operations and that the proportion of young women opting for a career at Koenig & Bauer has widened testifies to our appeal as an employer.

Short distances to the customer are invaluable. This is why local service is a core distinguishing feature, setting Koenig & Bauer apart from many of its competitors. It is not without reason that, out of a total of around 5,000 employees at Koenig & Bauer, roughly 1,000 are now employed in service business. This not only positions the company as a market leader, but also enables it to respond quickly to the needs of its customers. The emergence of a political trend in favour of "near shoring", i.e. production that is as regional and self-sufficient as possible, is also playing into the hands of a globally positioned company such as Koenig & Bauer.

Satisfactory business performance in 2023

Despite the ongoing challenging global economic environment, Koenig & Bauer achieved consolidated earnings before interest and taxes (EBIT) of €29.9m. This places EBIT within the forecast range of €25m to €35m that had been adjusted on 8 November 2023. At around €1.3bn, the forecast revenue target was achieved. The heightened profitability despite the start-up and trailing costs in the Digital & Webfed segment is mainly due to the more efficient handling of inflation-induced additional costs as well as improved cost management in the third quarter as a result of the absence of any recovery in demand. In this regard, the final quarter returned to its usual strength.

Future dividend policy adopted with a payout ratio of 15-35%

In view of the earnings performance in 2023 and the persistently challeng-ing global economic market environment, the Management Board and the Supervisory Board will be proposing at the Annual General Meeting that the net profit generated by the holding company Koenig & Bauer AG be retained and that a dividend be omitted for the 2023 financial year. How-ever, as Koenig & Bauer attaches great importance to ensuring appropriate participation of its shareholders in its success, a future dividend policy has been adopted which, subject to profitable business performance during the year, aims to distribute a dividend of 15-35% of consolidated earnings, with a minimum dividend of €0.30 per share.

Nevertheless, we are aware that Koenig & Bauer needs to be more profita-ble looking forward. Just like our successful customers, we must focus on the value drivers that are spurring our transformation from a printing press manufacturer into a technology company.

"Spotlight" on growth drivers and innovations

With the "2023 Growth Offensive" adopted in 2018, which aimed to proac-tively exploit the market opportunities arising in digital printing, corrugated board, cardboard packaging and flexible packaging printing in particular, as well as in the postpress sector in the interests of sustainable profitable growth, Koenig & Bauer has significantly driven forward its transformation from a printing press manufacturer to a technology company. The company is thus headed in the right direction, although external and internal factors are resulting in heightened complexity and rising costs. For this reason, the Management Board initiated the "Spotlight" focus programme at the end of 2023.

To summarise, the old adage that you reap what you sow still applies. We launched the growth initiatives in 2018 with foresight. With this mindset, we have been the market and technology leader in many areas for more than 200 years. And that's how we want things to stay. We have now almost completed the sowing phase and want to reap the harvest. This will also be aided by the "Spotlight" programme, in which we are prioritising initiatives and business models that boost earnings and financial strength, deprior-itising initiatives that do not directly impact earnings and optimising the Group and segment organisation as well as the indirect cost structure to make processes even leaner and more customer-friendly. For the most part, the measures will be identified, implemented and finalised in 2024, although the full-year effect will not be felt until 2025.

Outlook for 2024

Provided that the global economic situation does not deteriorate again and no special effects disrupt global consumer spending, Koenig & Bauer's growth path is likely to remain intact, as the world's affluent middle class is growing particularly rapidly, indeed at a disproportionately sharp rate especially in Asia. This is indicated by the expected compound average growth ratio, or CAGR for short, of roughly 4% for the packaging market. New partnerships, such as the one with automotive OEM Volkswagen for joint development activities in sustainable battery cell production, mark a further step on our growth trajectory. In addition, drupa, the world's largest trade fair for the printing and graphics industry will be taking place

in Düsseldorf from the end of May until the beginning of June, generating important impetus in the second quarter of this year.

Despite this challenging macroeconomic environment, Koenig & Bauer assumes that revenue and the EBIT margin will remain stable in 2024 at the previous year's level. Specifically, we are looking for operating earnings of between €25m and €40m and revenue of around €1.3bn. However, Group EBIT for 2024 will be burdened by up to €10m from spending on drupa, resulting in Group EBIT of between €15m and €30m after this one-off effect. Given the persistently muted economic situation, the company projects an EBIT margin of 6 - 7% in 2026 at the latest, accompanied by Group revenue of €1.5bn. In the medium term, it is looking for revenue of around €1.8bn and an EBIT margin of 8 - 9%.

the Annual Report, to find out more about what you can expect from us as we move forward. In addition, you will also find many exciting insights into what the packaging of the future could look like.

Acknowledgements

As in the past years of its history spanning more than 200 years, Koenig & Bauer will be keeping a close eye on the developments in the market and, above all, the individual needs of its investors, customers, employees and service providers. Bold and forward-looking strategic decisions made in the year under review have laid solid foundations for this. The Manage-ment Board thanks all the parties involved for this and their many years of loyalty.

In addition to his existing duties as Chief Financial Officer and Deputy Chief Executive Officer, Dr Stephen Kimmich will also be assuming respon-sibility from 1 April for the Special segment, which I previously held. This will allow me to devote greater attention to the "Spotlight" focus project.

Looking forward into the long term, the best is still ahead of the compa-ny, because Koenig & Bauer has always been a technological leader in its markets and will continue to expand this leading position over the next few years - not least of all through selective, carefully considered M&A transactions, by rolling out the basic technologies in adjacent areas as well as through cross-selling. Take a look at our trend radar in the summary ofWürzburg, 20 March 2024

The Management Board of Koenig & Bauer AG

Dr Andreas Pleßke Chief Executive Officer

Supervisory Board report

Dear shareholders,

The Supervisory Board devoted its attention to the Group's strategic devel-opment in terms of digitisation, modularisation and internationalisation in addition to measures for securing and enhancing its earnings and financial strength on a sustained basis. The 2023 financial year was once again over-shadowed by geopolitical crises as well as challenging economic conditions caused by inflation, rising interest rates, muted economic growth in key markets and pronounced uncertainties. Various conditions such as a tem-porary reluctance to invest in new printing presses and delayed ordering in some business areas as well as the strong momentum in the launch of future-oriented products and new digital business left adverse traces on target achievement in the year under review. However, the extraordinar-ily broad product portfolio, which is aligned to growth and stable niche markets, stabilised business performance, with service business once again proving to be a reliable earnings pillar.

In addition to discussing market trends and growth business, the Supervi-sory Board dealt in detail with the business and earnings situation as well as the financial position of Koenig & Bauer AG and the Group together with the situation at key subsidiaries. Business policy, the M&A strate-gy, the competitive situation, risk management, compliance, the internal control system, internal auditing, cybersecurity, the capital market and personnel strategy were discussed at length. The Supervisory Board and the Audit Committee dealt with sustainability issues pertaining to environ-ment, social and governance matters (ESG for short) as well as with the new ESG-related regulatory requirements. In addition to the Management Board's corporate and investment planning, further items on the agenda of the Supervisory Board and the committees included the dividend policy, governance and remuneration matters and, in particular, the revision of the Management Board remuneration system. All necessary resolutions were passed after detailed examination and intensive discussion.

In the year under review, the Supervisory Board was again informed promptly, regularly and comprehensively by the Management Board of all events that were of material importance for the Company. In 2023, this was done in the form of hybrid Supervisory Board meetings with combined in-person attendance and online participation, in video conferences as well as over the phone and in writing. The Chairman of the Supervisory Board and the Chief Executive Officer meet on a weekly basis, and further regular meetings are held between the Chair of the Audit Committee and the Chief Financial Officer. In addition, the Supervisory Board received continuous reports concerning the Company's key performance indicators.

The Supervisory Board performed its duties with great care in accordance with the law, the Articles of Association and the Rules of Procedure. Six Supervisory Board meetings and six information events for the Supervi-sory Board were held on matters of current relevance in 2023. These were supplemented by internal preparatory video conferences held prior to the Supervisory Board meetings. The Supervisory Board also met at times in the absence of the Management Board to discuss matters that concerned either the Management Board itself or internal Supervisory Board subjects. Of the six meetings of the Supervisory Board, four were held as hybrid meetings with in-person attendance and online participation and two as in-person meetings. Five of the six information events for the Supervisory Board were held as video conferences and one in hybrid form with in-per-son attendance and online participation. The chairpersons of the Supervi-sory Board committees reported regularly to the full Supervisory Board on the agenda and recommendations of the committee meetings. In the year under review, no members of the Supervisory Board were subject to any conflict of interests. The breakdown of the attendance at the meetings of the Supervisory Board and the committees is set out in the following table:

SupervisoryMember since

Board meetingsName

Prof. Dr.-Ing. Raimund Klinkner, Chair

Gottfried Weippert, Deputy Chair

Dagmar Rehm, Deputy Chair

Claus Bolza-Schünemann (from 16 June 2023)

Julia Cuntz

Carsten Dentler

Marc Dotterweich

Werner Flierl (until 31 July 2023)

Matthias Hatschek (until 16 June 2023)

Christopher Kessler

Prof. Dr.-Ing. Gisela Lanza

Dr Johannes Liechtenstein

Simone Walter

Sabine Witte-Herdering (from 1 August 2023)

• 1 On a time-proportionate basis due to entry or exit during the year

• 2 For health-related reasons

(6)

2018 2001

6/6 6/6

2014 2023 2016

6/6 4/41 6/6

2017

Personnel Committee

(7)Audit Commit-tee (6)

7/7 7/7

-

6/6

7/7

6/6

- -

- -

2015

2021

2006

2016

2015

6/6 4/6 0/41 2/2 6/6 5/6

2019

- - - - - -

- 6/6

- - - -

6/6

2016 2023

6/6 2/21

-

5/6

- -

- -

While there were no changes in the composition of the Management Board in the year under review, the composition of the Supervisory Board did change in the course of 2023. Following the resignation of Mr Matthias Hat-schek as a shareholder representative on the Supervisory Board at the end of the Annual General Meeting on 16 June 2023, Mr Claus Bolza-Schüne-mann was elected to the Supervisory Board as his successor at the Annual General Meeting. The Supervisory Board thanked Mr. Hatschek for his long-standing confidence-inspiring contributions and for his commitment to the Company. The composition of the committees was determined at the constituent meeting of the Supervisory Board held following the An-nual General Meeting on 16 June 2023. Details of the current composition of the Supervisory Board's committees can be found on the Company's website. With the elections held during the 2023 Annual General Meeting, the Supervisory Board was able to advance its own profile of skills, par-ticularly with regard to industry-specific knowledge. Effective 31 July 2023, Mr. Werner Flierl resigned from the Supervisory Board as a trade union representative. His successor, Ms Sabine Witte-Herdering, was appointed to the Supervisory Board as an employee representative for the remainder of Mr Werner Flierl's term of office under a ruling issued by the Würzburg

Strategy Commit-tee (2)

Nominating Committee

(1)

1/2

Total participa-tion

Registry Court on 1 August 2023. No modifications were required to the composition of the Supervisory Board committees as a result of this change.

1/1

2/2

94%

-

- 1/11

1/1

-

100%

- - 1/11 2/2 2/2

-

1/2

2/2

- - - 1/1

- -

-

-

-

-

-

88% 83% 0 %2 100% 100% 88%

100%

100% 100%

100% 100%

92%

The members of the Supervisory Board receive appropriate support from the Company in the form of training and further education. The Supervisory Board training system, which was ex-panded in 2022, comprises two webinars a year on selected topics together with optional external training events. The training events in the year under review focused on the rules for adhoc disclo-sures, the Annual General Meeting and proxy advisors as well as enterprise valu-ation. As well as this, the Koenig & Bauer Board Academy has developed its own website as a platform for training andfurther education for the members of the Supervisory Board. In addition, the employee representatives are able to make use of the conferences organised by the Hans Böckler Foundation as well as the further education provided by the trade unions and DGB-Bil-dungswerk.

The meetings of the Supervisory Board and its committees as well as the information events dealt with the following matters in 2023: The video conferences of the Supervisory Board on 16 February 2023 and 23 Febru-ary 2023 were dedicated to governance topics and the preliminary figures for 2022 as well as the guidance for 2023. At this meeting, the Supervisory Board approved the Management Board's proposal for the allocation of the unappropriated surplus expected for 2022.

At its hybrid meeting of 21 March 2023 with in-person attendance and online participation, the Supervisory Board dealt at length with the annual financial statements for Koenig & Bauer AG and the Group as of 31 De-cember 2022, the combined management report, the non-financial Group report and the 2022 remuneration report for the members of the Manage-ment Board and the Supervisory Board together with the relevant audit

reports. The 2022 annual and consolidated financial statements including the combined management report and the non-financial Group report, the 2022 remuneration report and the Management Board's proposal for the allocation of the unappropriated surplus for the 2022 financial year were approved or adopted. Furthermore, the Supervisory Board approved the resolution passed by the Management Board to submit the 2022 remuner-ation report to the Annual General Meeting on 16 June 2023 for approval by the shareholders. The wording of the invitation to the Annual General Meeting including the nine items of the agenda and the proposals for the adoption of the corresponding resolutions was also approved. In addition to the current status of the P24x project as of 31 December 2022, the lengthy agenda for the March meeting of the Supervisory Board included strategy, financing and capital market issues. Furthermore, the Management Board explained in detail to the Supervisory Board the partnership agreed with Sealed Air in the digital printing press area.

On 12 May 2023, the Supervisory Board held a video conference to discuss the Q1 figures. The in-person meeting of the Supervisory Board on 15 June 2023 was held on the day prior to the Annual General Meeting. In addition to cybersecurity and the HR strategy, the agenda included the refinancing of the syndicated loan, the development of the subsidiaries and strategic issues such as the partnership agreement entered into with Volkswagen subsidiary PowerCo SE concerning joint development activities in sustaina-ble battery cell production. Further topics entailed Management Board re-muneration matters and a decision on the topics on which the Supervisory Board was to receive training in 2024. As well as this, the results of the Su-pervisory Board's efficiency audit, which is conducted internally every year with external support and regularly updated in the light of current matters and legal requirements, were discussed. The Supervisory Board held its constitutive meeting on 16 June 2023 following the Annual General Meet-ing. Due to the changes in the shareholder representatives, adjustments were made to the composition of the Supervisory Board committees.

At the strategy meeting of the Supervisory Board on 25 July 2023, the Management Board presented the results of the rolling strategy process with this year's focus on internationalisation in a hybrid meeting with both in-person attendance and online participation. Particular attention was paid to the Group's global footprint as well as the three strategic pillars of sustainability, digitisation and modularity. A further item on the agenda of the strategy meeting concerned governance matters.

On 27 July 2023, the Supervisory Board was briefed on the report for the first half of 2023 in a virtual meeting. In a hybrid Supervisory Board meeting held on 28 September 2023 with both physical and online attend-ance, the Management Board presented the high-level business plan for the years 2024 to 2028. The Supervisory Board also approved the Manage-ment Board's proposal for the early refinancing of the existing syndicated loan by means of a new syndicated credit facility. The Supervisory Board was briefed on the progress being made within the Group with respect to the new regulatory ESG requirements, particularly under the Corporate Sustainability Reporting Directive (CSRD). Strategic issues were also on the agenda.

At a hybrid meeting with in-person attendance and online participation on 7 November 2023, the Supervisory Board deliberated on the Q3 report as well as the Management Board's revenue and EBIT projections for 2024. During the Supervisory Board's video conference on 15 November 2023, the proposals for the revision of the Management Board remuneration system, which had been prepared with external support, were discussed. At the hybrid Supervisory Board meeting held on 7 December 2023 with in-person attendance and online participation, the Management Board presented in detail the corporate and investment plans for 2024 and pro-vided an outlook for the years until 2028. The Supervisory Board approved the corporate and investment budget for 2024 and acknowledged the medium-term plans. In addition to the Green Energy project, the agenda also included strategic issues and the development of the subsidiaries. In addition, the person responsible for compliance, internal auditing and risk management submitted a status report on these three areas. The Super-visory Board approved the Management Board's proposal to submit the merger of Koenig & Bauer Immobilien GmbH with Koenig & Bauer AG to the Annual General Meeting on 26 June 2024 for approval. The revised Management Board remuneration system was adopted by the Supervisory Board with retroactive effect from 1 January 2024 and will also be sub-mitted to the 2024 Annual General Meeting for approval. In the course of intensive discussion of Management Board issues, the Supervisory Board appointed Dr Andreas Pleßke, Spokesperson of the Management Board, to the position of Chief Executive Officer and Dr Stephen Kimmich, Chief Financial Officer, to the position of Deputy Chief Executive Officer with effect from 1 January 2024.

Much of the Supervisory Board's work is performed by its various com-mittees. Five ordinary committees assist the Supervisory Board in the performance of its duties by preparing the resolutions to be passed by the Supervisory Board and the matters to be discussed in the plenary sessions. The Personnel Committee met seven times and the Nominating Commit-tee once in video conferences. Of the six meetings of the Audit Commit-tee, three were held in hybrid form with in-person attendance and online participation and three as a video conference. In addition to the strategy conference, which was attended by the entire Supervisory Board, a further two meetings of the Strategy Committee were held during the year under review. All the meetings of the Strategy Committee were held in hybrid form with in-person attendance and online participation. It was again not necessary for the Mediation Committee appointed under section 27 (3) of the Codetermination Act to convene in 2023.

In addition to examining the quarterly reports and updated annual fore-casts, one of the main tasks of the Audit Committee was to review in detail the annual financial statements of Koenig & Bauer AG and the consolidat-ed financial statements as well as the combined management report, the non-financial Group report and the corresponding audit reports as well as the remuneration report for the members of the Management Board and the Supervisory Board. Throughout the entire process of preparing the financial statements, regular meetings were held between the Chair of the Audit Committee and the external auditor. During the discussion of the annual financial statements, the representatives of the statutory auditor reported to the committee on the results of their audit and were available to answer any questions and for detailed discussion of various matters. The Audit Committee prepared the approval and adoption of the finan-cial statements and the remuneration report by the Supervisory Board. It reviewed the quality of the audit of the financial statements, monitored the independence of the external auditor and obtained his declaration of independence. The Audit Committee also prepared the proposal for the election of the auditor of the annual financial statements and the consoli-dated financial statements for submission to the Annual General Meeting. The Audit Committee reviewed the non-auditing activities requested by the Company from the external auditor on a quarterly basis. In addition to determining the priorities of the external audit of the financial statements, the Audit Committee also discussed the compliance management system and the compliance plan, internal auditing and the audit plan, the risk management system and the risk situation within the Group, the internalcontrol system, export control, ESG issues and cybersecurity. In addition, it received comprehensive and regular updates on the progress of SAP migration and the organisational project for the interaction of govern-ance, risk management and compliance (GRC). The Management Board presented the standardised M&A process together with the processes for post-merger integration (PMI) to the members of the Audit Commit-tee. Various aspects of a future dividend policy were also discussed. The focus of two extraordinary meetings of the Audit Committee was on the ESG roadmap and regulations, internal auditing and a review of the annual financial statements process. The Chief Executive Officer and the Chief Financial Officer regularly attended the meetings of the Audit Committee.

In the year under review, Management Board matters, remuneration and structural matters dominated the meetings of the Personnel Committee. In addition to overseeing the preparation of the remuneration report, the Personnel Committee prepared various draft resolutions for the Super-visory Board concerning variable Management Board remuneration and the target agreements with the Management Board, the revision of the Management Board remuneration system, Management Board governance and further training of the Supervisory Board in the following year. The Nominating Committee prepared recommendations for the full Superviso-ry Board concerning a candidate for election to the Supervisory Board at next Annual General Meeting, as well as proposals for rendering the term of office on the Supervisory Board more flexible and for determining a regular term of office. The Strategy Committee was closely involved in the new Group strategy process and was briefed at length by the Management Board in its meetings on digitisation and digital printing as well as market strategies and trends.

The application and further development of the corporate governance rules by the Company, particularly the implementation of the recommen-dations of the Code, are regularly monitored by the Supervisory Board. The Corporate Governance Statement published on the Company's website describes the activities of the Supervisory Board with regard to the Decla-ration of Conformity pursuant to section 161 of the German Stock Corpo-ration Act.

10