Krones : Präsentation Conference Call Quarterly statement Q1 2020

KRONES Conference Call

April 29, 2020

Christoph Klenk, CEO Norbert Broger, CFO

2 ｜KRONES Conference Call April 29, 2020

Krones Q1 2020

Revenue decreased due to the initial effects of the COVID-19 situation by 4.2% year-on-year to

€942.0 million between January and March 2020.

Overall economic uncertainties have significantly impacted customers' investment confidence regarding new projects, especially since March 2020. Order intake in the first quarter decreased by 19.3% compared to previous year.

Structural measures are beginning to take effect. Earnings before interest, taxes, depreciation and amortisation (EBITDA) went up, despite the lower revenue, to €89.5 million. The EBITDA margin improved to 9.5% (previous year: 8.7%).

Due to the global uncertainties in connection with the Corona Virus, it is currently not possible to provide reliable indications and guidance for revenue and earnings in the 2020 financial year.

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Financials

Q1 2020

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Krones Highlights Q1 2020

-19.3%

New orders

5.6%

€841m

€53.0m

942

-16.0

Revenue (-4.2%)

€m

Free cash flow

€m (PY -€136.6m)

EBT margin

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EBT/EBITDA Similar to Q1 in Prior Year Despite Lower Sales

260.0

			227.3
			-25.7%
112.6
		EBT margin		EBITDA margin
41.7		9.5% vs.
5.6% vs.
-79.6%		8.7% PY
5.2% PY
	13.5
51.5	53.0
			89.5

EBT/EBITDA margin improvement due to:

• Reduction in workforce in Germany
• Savings in material costs
• Reduction in purchased services
• Savings in other expenses (travel, freight, …)
• Favourable product mix (volume decline in OEM business; service business still strong)
• Better resource management in declining volume situation compared to 2019
• Price increases from 2019

-3.6

-19.7

2019

51.5

2019

2020

2020

EBT (in €m)

EBITDA (in €m)

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Q1 Order Intake Affected by Covid-19, Especially in March

Limited Covid-19 impact on Q1 revenue due to order backlog

4,084

3,959

	-19.3%					-4.2%
	841					942
2019	2020	2019	2020

New orders (€m)

Revenue (€m)

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Krones' Q1 Revenue Split Remains well Balanced

Share of revenue (Q1)

CIS/Central Asia

Europe

2018 2019

40.4 % 45.0 %

North America

2018	2019	2020	35,9%
11.7 %	11.8 %	16.8 %

13,8%16,8%

South America

2018 2019 2020

11.6 % 10.0 % 11.8 %

2018 2019

2.5 % 1.6 %

2020

39.8 %

2,6%

39,7%

Africa/Middle East

2018 2019 2020

14.0 % 10.5 % 12.3 %

13,6%12,3%

2020

2.8 %

2,8%China

2018 2019 2020

6.7 % 9.3 % 4.9 %

9,1%

4,9%

Asia/Pacific

2018 2019 2020

13.0 % 11.9 % 11.6 %

15,4%

11,6%

9,6%11,8%

Trend over last six years

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Personnel and Material Costs Q1

Personnel cost (€m) Q1

323.3	321.6
289.8

32.032.733.8

201820192020

Personnel costs to total performance (%)

Material cost (€m) Q1

453.6	491.6
438.5

	50.1	49.7
	46.1
	2018	2019	2020

Material costs to total performance (%)

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Development of Revenue and EBITDA per Segment in Q1
Segment	Revenue (€m) Q1 2020		EBITDA (€m) Q1 2020		Outlook 2020
Product filling	Growth			EBITDA margin
and decoration	+4%	+8%	-2%
	10.5%	11.2%	11.9%	Reliable
	774	834	816
							outlook on
				80.9	93.5	97.0	revenue
							and
							earnings
Beverage production/	Growth			EBITDA margin			not
Process technology	-23%	+27%	-16%				possible
	118	149	126				due to
							Covid-19
					-7.5	-7.5	situation
				-2.0
	2018	2019	2020	2018	2019	2020

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Free Cash Flow Improved in Q1 Mainly by Lower Working Capital Increase

Q1 (€m)	2020	2019
Earnings before taxes	53.0	51.5
+/- Other non-cash changes	+66.9	+108.3
+/- Changes in working capital	-27.3	-200.1
+/- Changes in other assets and liabilities	-76.4	-49.9
Cash flow from operating activities	16.2	-90.2
+/- Capex	-34.2	-46.6
+/- M&A activities	0.0	-1.9
+/- Other	+2.0	+2.1
Free cash flow	-16.0	-136.6
+/- Financing activities	+251.5	+75.2
Net change in cash	235.5	-61.4
Cash at the end of the period	345.9	157.4

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Working Capital and ROCE Q1

Working capital* in %	ROCE* in % (Q1)
of revenue (Q1)

28.2

26.4 27.1

15.3

13.2

11.9

2018

2019

2020

2018

2019

2020

*LTM (Last twelve months)

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Krones is Very Well Positioned Financially

Net cash, free credit lines and high equity ratio in Q1

Liquidity reserves €1bn

Equity in €m and equity ratio in %

Used credit lines 335€m		1,433	1,370	1,380
1,330
	1,226

43.8% 43.2%

41.3%

39.9%

39,6%

Cash 345€m

Free credit lines €665m

2016

2017

2018

2019

2020

31.03.

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Mid-Term

Outlook

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Krones Mid-Term Targets

Revenue growth		EBITDA margin
		Working capital to
				revenue
2-5%		9-12%		22-24%

Equivalent to EBT margin

6-8%

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Corona

Update

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Current Spread of COVID-19: Confirmed Infections per One Million Citizens

As of April 23, 2020

Source:

European CDC

OurWorldInData.org / CC-BY

Real infection estimated to be significantly higher because only confirmed/tested infections included in statistics

Infection rate in Europe & North America high; growing infection rates in developing countries

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2008/09 Financial Crisis vs. COVID-19: Impact on GDP

12

	10	Change in GDP in relevant markets
	8
		COVID-19
	6
%		2009
4
inchange
2
GDP	0
	-2

-4

-6

-8

USA

Eurozone

China

Japan

UK

Source:

COVID-19 forecast based on base-case scenario from ING Research

As of 2 April 2020

Data 2009 based on International Monetary Fund (IMF): World Economic Outlook (WEO), 10/2017

COVID-19 will most likely lead to deepest recession since 2008/2009 financial crisis; many institutions expect even stronger negative impacts

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Beverage Industry: No Shutdown for our Customers

Demand		Supply

Purchase decisions for consumer staples cannot be postponed indefinitely(unlike discretionary items)

However: Gastronomy & duty free distribution channels hit by restrictions

Anxious consumers show tendencies to stockpilefood and beverages leading to significant spikes in demand

However: Lower demand due to later consumption of household stockpiles

Many F&B industry supply chainsare regional (transport costs)and supplies typically come from multiple sources (e.g. agricultural commodities, packaging)

Food supply is critical infrastructure, therefore exemptionsare granted even amid the most severe shutdowns

(e.g. China, Italy, Spain)

Favourable impact	HPC	Liquid Food	Fresh Dairy	Wine	Beer
	UHT Dairy		Water	Softdrinks	Spirits

"People always eat and drink", however there are major shifts among categories.

impact

Adverse

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How will the Pandemic affect the Beverage Industry throughout the World?

Preparatory

Phase

Major

Restrictions

Major

Restrictions

New

Normal

A

B

C

D

Stockpilingof food, toiletries, health care products & pharmaceuticals

Fewer store visits with larger shopping baskets, difficulties with replenishment & increasing pressure on supply chains

Minimum frequency of store visits,

partially limited availability and price increases, online shopping

Medium-term risk:

Lower demand due to deferred consumption of household stockpiles

Long-term effects:

Increased e-commerce in the F&B sector, possible changes in packaging size preferences

Based on Nielsen Report 21 April 2020 (modified)

Status A: Preparatory Phase		Status C: Major Restrictions
Status B: Minor Restrictions		Transition to Status D
		Status D: New Normal

Consumer patterns are changing in phases of adaptation as the pandemic unfolds.

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Customers' FY2020 Financial Outlook: Uncertainty amid COVID-19 Pandemic

Timeline COVID-19

Major IR Releases

24 March

AB InBev

26 March Coca-Cola(KO)

9 April

DIAGEO

21 April

Danone

Given theuncertainty, volatility andfast-moving developments of the pandemic in the markets in which AB InBev operates, the Company is withdrawing that 2020 Outlook in its entirety because of the impact ofCOVID-19.

The negative impact on our financial and operating results cannot be reasonably estimated at this time, but the impact could be material. [...] Currently, the area most impacted is the on- premise channel(e.g. restaurants). Globally, on-premise sales represent approximately 40% of our industry.

1. we are not in a position to accurately assess the impact of this on our future financial performance.
   Danone is not in a position to accurately assess its impact on its 2020 […] significant changes in consumers' buying behaviours, with unprecented swings in weekly demand accentuated by stocking patternsin the first weeks, the shift from out-of-home to at-home food consumption, as well as shifting preferences to larger pack sizes.

Despite prevailing uncertainty, there are no signs of overwhelming pessimism or panic.

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Customers' Risk Exposure #1: On-Trade Sales Volumes

Off-Trade

Supermarkets, Off- licence, Convenience Stores

On-Trade

Bars, Restaurants,

Cafés

Volume in Liters

61%

75% 73%75%

39%

25% 27%25%

Beer/Cider CSD Spirits Wine

Monetary Value

42%

49%

56%

63%

58%

51%

44%

37%

Beer/Cider CSD Spirits Wine

Source: Global Data | Year: 2018

Gains in off-trade likely cannot compensate a fall in profitable on-trade revenues.

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Customers' Risk Exposure #2: Financial Leverage

Sample of 10 listed Customers from Brewing, CSD & Spirits Industry

Citi Research Estimates (2020)

Balance Sheet Leverage

Forecast 2020: Net Debt/EBITDA

6

5

4

3

2

1

0

Debt Service Coverage

Forecast 2020: Interest/OCF
20
18
16
14
12
10
8
6
4
2
0

Despite leveraged balance sheets, short-term liquidity needs are secure amid pandemic woes.

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China: Regional Impact on Krones

Consumer Sentiment

• Restaurants & servicesare back in operation, safety measure like body temperature checks remain
• Transport & travelrestrictions have been lifted, though some limits are still in place (esp. Beijing)
• E-commercefor consumer staples rapidly gained popularity
• Consumersare now encouraged to resume consumption, some local governments granted holiday

	Beverage Industry			Krones Operations
▪Strong Q2 rebound expected,	▪Tenders on track; no major
	potential compensation of Q1		investment projects cancelled, only
	slump in certain beverage markets		occasional minor delays
▪2020 industry outlook cautiously	▪Preparation for season (Q2/Q3)
	optimistic; some categories may		favours investment in filling line
	see volumes comparable to 2019		availability & performance (IOS)
▪Cans gain importance as they are	▪No lack of liquidity among big
	suitable for e-commerce w/		customers(>80% of revenue),
	favourable weight & shelf life		SMEs are more exposed overall
▪Focus on domestic market helps,	▪Internal supply chain challenges
	low industry exposure to export		were quickly overcome

In Q1, the economy was under significant strain - but Q2 appears to be back on track.

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USA: Regional Impact on Krones

Consumer Sentiment

• Restrictions vary locallythroughout North America both across borders & domestically
• Consumer sentiment impairedby uncertain situation & outlook
• Stockpiling of consumer stapleswas significant, especially in the early phase of epidemic
• Online shoppinggained popularity and is likely to stay for long-term
• Up to 50% restaurantsmight notre-openafter restrictions are lifted

Beverage Industry

• On-trade/cateringbusiness down Beer & CSDpost-mixsyrup volumes particularly hit
• Trend to larger packaging sizes, less demand for single serve SKUs
• Private label products benefitas purchasing power is suppressed
• Supply chain risk: Delayed consumption of stockpiles at home may lead to lower demand at a later point in time

Krones Operations

• Krones operations up & running, transportation & staff deployment challenges were managed so far
• Customers' capex uncertain, new machinery projects under review and/or postponed
• LCS business on track, yet some overhauls delayed to Q3/Q4 due to currently high utilization
• Long-termcompensation of lost revenues not be taken for granted

Time and magnitude of a potential rebound are not yet on the horizon.

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Krones Focus

1. Extensive programme to minimise risk of infections for employees, customers, suppliers, service partners, visitors and other parties and stakeholders related to Krones.
2. Worldwide coordinated business continuity taskforces and action plans in place to secure customer service and customer projects - following individual legal requirements and Krones guidelines
   as stated in 1
3. Additional activities to secure short and midterm liquidity for all Krones entities worldwide. €1 billion committed loans plus further options (German 'KFW' programme not included).
4. Development of different business scenarios and action plans for 3, 6 and 12 months.
5. Work on midterm targets and actions to make Krones stronger coming out of this crisis.

Given the highly dynamic nature of the crisis, the following document can only be a snapshot

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Questions and Answers

? …

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Financial Calendar 2020

May 18, 2020	Annual General Meeting (virtual)
July 30, 2020	Conference Call Group Q2 2020 and
	Interim Report as per June 30
October 29, 2020	Conference Call Group Q3 2020 and
	Quarterly Statement as per September 30

Olaf Scholz

Head of Investor Relations

KRONES AG

Böhmerwaldstrasse 5

93073 Neutraubling

Germany

Phone

[phone]

29 ｜KRONES Conference Call April 29, 2020

Disclaimer

This investor presentation contains forward-looking statements that are based on current estimates, forecasts and assumptions made by KRONES AG management to the best of its knowledge and other information currently available to KRONES AG.

The forward-looking statements of this presentation are by their very nature subject to various known and unknown risks, uncertainties and other factors, the non-occurrence or occurrence of which could cause material differences in future results of operations, financial situation, development or performance of KRONES AG. Factors that could cause such differences include but are not limited to changes in political, business, economic and competitive environment, effects of future legal and legislative issues, fiscal, and other regulatory measures, foreign exchange rate fluctuations, interest rates, the availability of financing, developments in raw material and personnel costs, launches of competing products or services, poor acceptance of new products or services, and changes in business strategy.

KRONES AG does not intend and does not assume any liability whatsoever to publicly update or revise any forward-looking statements or other information contained in this presentation as a result of new information, future events or otherwise. No representation or warranty, express or implied, is made by KRONES AG and/or its management with respect to the fairness, completeness, correctness, reasonableness, or accuracy of any information, facts, expectations or opinions contained herein. Neither KRONES AG nor any of its affiliates, representatives or advisors shall have any liability whatsoever (in negligence or otherwise) for any losses or damages arising from any use of this presentation or its content or otherwise arising in connection with the statements given herein.