KRONES

First Half Year 2020

Conference Call July 30, 2020

2 ｜KRONES Conference Call July 30, 2020

Krones Q2 2020

Revenue from April to June fell by 16.5% year-on-year. In the first half of 2020, revenue went down by 10.1% to 1,698.6 EURm.

Extreme uncertainty due to the corona situation is affecting investment confidence among customers. Order intake decreased by 38.2% in the second quarter. In the first half year, the contract value of orders went down by 28.5% to 1,457.3 EURm.

Cost reductions due to structural measures mitigated the negative earnings impact of the lower revenue. Earnings before interest, taxes, depreciation and amortisation (EBITDA) remained stable at 118.5 EURm in the first half of 2020, compared with 116.9 EURm in the previous year. EBT of 31.8 EURm for first half year includes a second-quarter loss of 21.2 EURm.

The development of the economy continues to be subject to great uncertainty in the short term. Because of this, it remains difficult to estimate the size of the adverse impacts on demand and investment confidence among customers. The Krones Executive Board has consequently decided once again not to provide an outlook for the 2020 financial year.

3 ｜KRONES Conference Call July 30, 2020

Financials

Q2 2020

4 ｜KRONES Conference Call July 30, 2020

Krones Highlights 1st HY 2020

-28.5%

New orders

7.0%

1,457 EURm

118.5 EURm

1,699

-64.8

Sales (-10.1%)

EURm

Free cash flow

EURm (PY -259.4 EURm)

EBITDA margin (PY 116.9 EURm; 6.2%)

5 ｜KRONES Conference Call July 30, 2020

Order Intake and Sales Significantly Affected by Covid-19

4,084

1,457

-28.5%

3,959

1,699

-10.1%

-16.5%

− Full Covid-19 impact in Q2 order intake

worldwide after moderate negative impact

in Q1

− All regions were affected by the decrease. The

reduction in Africa, Asia/Pacific and North

America was below group average. The other

regions were affected by more than minus 30%

-38.2%

-19,3%

616

841

757

-4.2%942

− Decline in sales shows time lag between order

intake and sales. The Covid-19 situation with

lockdowns, quarantine regulations and travel

bans also affected our service business

20192020

20192020

New orders (EURm)

Sales (EURm)

6 ｜KRONES Conference Call July 30, 2020

Krones' Sales Split

Share of Sales (1st HY)

Europe

2018 2019

37.3% 41.1%

North America

2018

2019

2020

35.9%

13.8%

14.9%

17.5%

13.8%17.5%

South America

2018 2019 2020

12.7% 10.1% 11.3%

9.6%11.3%

CIS/Central Asia

2018 2019 2020

2.3% 1.8% 2.3%

2020

37.2%

China

2.6%

2.3%

2018

2019

2020

37.2%

6.8%

8.2%

5.8%

Africa/Middle East

9.1%

8.1%

2018

2019

2020

Asia/Pacific

14.5%

11.6%

14.1%

2018

2019

2020

12.7%

12.3%

11.8%

13.6%

14.1%

15.4%

11.8%

Trend over last six years

7 ｜KRONES Conference Call July 30, 2020

Personnel and Material Costs Significantly Reduced

Personnel cost (EURm) 1st HY

574.4

641.7

594.9

540.1

31.5

31.8

33.6

34.9

2017

2018

2019

2020

Personnel costs to total performance (%)

Material cost (EURm) 1st HY

896.2

974.4

826.2

813.4

48.2

49.6

51.0

47.7

  • Besides first positive effects from the structural measures, with a decrease on employees (first 6 months of around 450 FTE less), additional measures relating to underutilization of resources (short-time working, reduction of overhours, …) resulted in reduced personnel costs by nearly 50 EURm in the first 6 months
  • Material costs were positively influenced by product mix (new machine vs. after sales) and a strong reduction in purchased services (temporary workers), as well as material savings in direct materials

2017

2018

2019

2020

Material costs to total performance (%)

8 ｜KRONES Conference Call July 30, 2020

EBITDA Stable at June 30, 2020 due to High Cost Flexibility of Krones

EBITDA (in EURm)

EBT (in EURm)

116.9 118.5

86.0

89.5

51.5

53.0

47.9

31.8

30.9 29.0

Q1

Q1

Q2

Q2

1 HY

1 HY

Q1

Q1

-3.6

1 HY

1 HY

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

-21.2 Q2 Q2 2019 2020

  • Due to cost reduction impacts and product mix change, EBITDA in Q2 and HY1 20202 nearly on same level as last year
  • After a strong Q1 2020, EBT in the second quarter 2020 results in
    a loss
  • In Q2 2020 EBT value adjustments for Goodwill (13.6 EURm) and customer credit risk (3.2 EURm) are included

9 ｜KRONES Conference Call July 30, 2020

Development of Sales and EBITDA per Segment in 1st HY

Segment

Sales (EURm) 1st HY

EBITDA (EURm) 1st HY

Product filling

Growth

EBITDA margin

and decoration

+2%

+3%

-7%

10.1%

7.7%

9.8%

1,530

1,581

1,470

155.0

121.8

143.7

Beverage production/

Growth

EBITDA margin

Process technology

-5%

+18%

-26%

+0.9%

-1.6%

-11.0%

308

261228

+2.3

-4.9-25.2

  • Due to week market conditions sales in the core business decreased compared to previous year by minus 7%
  • EBITDA margin increased from 7.7% to 9.8% due to favourable product mix and cost reduction measures
  • Sales reduction in the beer business world wide impact primarily due to covid-19
  • EBITDA margin decreased sharply from minus 1.6% to minus 11.0% results from:
    • Strong decrease in demand from projects in the beer industry
    • The lockdown in Italy in the second quarter had a strong negative impact on the Intralogistics business
  • In addition, EBT Q2 2020 is influenced by goodwill impairment in an amount of 10.5 EURm

2018

2019

2020

2018

2019

2020

10 ｜KRONES Conference Call July 30, 2020

Working Capital Ratio Mainly Influenced by Sales Decrease

Working capital* in % of revenue (1st HY)

28.8

27.6

26.0

2018

2019

2020

ROCE* in % (1st HY)

15.5

5.5

3.8

2018

2019

2020

  • Working Capital in euros was quite stable at 30.6. compared to prior year Q2
  • The Increase in the working Capital to Sales ratio was influenced by the Sales decrease
  • Inventory was increased by security stock of parts
  • ROCE mainly influenced by the negative earnings situation in Q2

*LTM (Last twelve months)

11 ｜KRONES Conference Call July 30, 2020

Free Cash Flow Improved Significantly by 195m vs. Prior Year

1st HY (EURm)

2020

2019

Earnings before taxes

31.8

47.9

+/- Other non-cash changes

+95.7

+102.0

+/- Changes in working capital

-84.1

-270.3

+/- Changes in other assets and liabilities

-56.4

-17.2

Cash flow from operating activities

-13.0

-137.6

+/- Capex

-55.2

-91.4

+/- M&A activities

0.0

-29.3

+/- Other

+3.4

-1.1

Free cash flow

-64.8

-259.4

+/- Financing activities

+151.6

+181.1

Other

0.0

3.8

Net change in cash

86.8

-74.5

Cash at the end of the period

197.2

144.3

  • Lower increase in working capital compared to 2019 and reduced capex result in a better free cash flow than prior year and a cash position of +197 EURm
  • The net cash position as of June 30, 2020 was -78 EURm (prior year: -109 EURm)
  • Krones currently has used credit lines of 275 EURm and unused credit lines of 750 EURm

12 ｜KRONES Conference Call July 30, 2020

Impact on Beverage Industry by Covid-19

13 ｜KRONES Conference Call July 30, 2020

ING Research July 2020: World Economic Outlook for 2020/2021

GDP Growth Forecast 2020

Base Case

Worst Case

0

-2

-1.5

-4

Change

-6

-4.5

-4.9

-5.7

-5.5

-8

in

-10

-8

-8.7

inGDP

-12

-10.4

%

-14

-16

-18

-20

-18.5

-18

USA

Euro area

China

Japan

UK

Base Case

2021

+4.0%

+4.5%

+4.3%

+1.0%

+5.4%

Rebound

Base Case Scenario

No more lockdowns

Social Distancing: 6-12 months

Vaccine: Q4/2020 - Q1/2021

Restrictions on travel

Sustainable job losses

Worst Case Scenario

More tightened lockdowns

Social Distancing: 12-18 months

Vaccine: Q3/2021 - Q4/2021

The further pandemic plays a crucial role in the extent of the recession

14 ｜KRONES Conference Call July 30, 2020

Forecast Beverage Consumption 2020 - By Regions

  • Loss in volume (liters) compared to initial value for 2020 (prior
    to outbreak of COVID-19)

North America

198

170

2020 2020

Latin America

201 188

2020 2020

Europe

-14% (-28 billion *)

306

290

-5% (-16 billion*)

2020 2020

Africa/Middle East

Asia

113

109

-4% (-5 billion*)

527

489

-7% (-37 billion*)

-6% (-13 billion*)

2020 2020

2020 2020

Forecast prior to COVID-19 outbreak Forecast incl. COVID-19 impact

The pandemic leads to a projected reduction in beverage consumption by 100 billion liters in 2020. North America suffers the most losses at -14% (loss of system gastronomy and lower purchasing power)

Source: Global Data COVID-19 Markt Modell | Rabobank | Euromonitor | Johns Hopkins University Center for Systems Science and Engineering

15 ｜KRONES Conference Call July 30, 2020

Forecast Beverage Consumption 2020 - By Categories

Winners and losers of the crises

Global change in comsumption in % compared to the previous year

Total

-5,4%

2,1%

Dairy

2,0%

5,4%

Bottled Water

-

2,1%

3,6%

Juice

-4,8%

0,6%

RTD Tea&Coffee

-9,0%

1,9%

CSD

-

12,0%

0,7%

Functional Beverages

-12,5%

4,6%

Beer

-12,8%

0,7%

Wine/Spirits

-14,4%

3,0%

-20%-15%-10%

-5%

0%

5%

10%

Volume in Billion liters (2019)

1.317

208

*liquid and solid dairy products

445

119

47

217

28

184

69

Slowdown in volume growth (including influence of COVID-19)

Initial value of volume growth (before the outbreak of COVID-19)

According to current forecasts the global beverage consumption in 2020 will drop by 5.4% compared to the previous year. Growth is only expected for dairy products.

Largest decline in the sectors CSC, functional and alcoholic beverages.

Source: Global Data COVID-19 Markt Modell | Rabobank | Euromonitor

16 ｜KRONES Conference Call July 30, 2020

Impact of the Covid19-Pandemic

Covid-Pandemic Society

  • Reduced social contacts
  • Restrictions for restaurants & catering areas
  • Ban on all mass events
  • Change in working environment

Consumer behaviour

  • Increased price sensitivity
  • Reduced impulse purchases
  • Reduced To-Go-consumption (larger containers)
  • Higher consumption at home
    (Tap water, tea, coffee…)

Machine manufacturers

  • Considerably reduced investment volume
  • Pressure on market prices
    ("affordable")
  • Increasing demand for innovative, long-termed financing models

Beverage producers

  • Decline in volume
  • Reduced profit margin (no more restaurants and catering trade, shift in portfolio and higher price sensivity)
  • Reduced product versions
  • Use of existing (over-)capacities
  • Investments which are postponed or stopped

17 ｜KRONES Conference Call July 30, 2020

What are the Impacts of Covid-19 on the Krones' Customers?

  • Our customers are strongly affected by Covid-19 as well!
  • Our customers have an average share in sales through bars, restaurants and "on-the-go" business of about 15-30%
  • Shutdowns of restaurants and bars have caused a significant decline

in sales and increased pressure on profitability of our customers

  • The beer industry has been especially affected
  • With declining consumer purchasing power, premium and branded products are expected to get under more pressure in the mid term

All this will lead our customers to make significant cuts in CAPEX (investments) and in OPEX (services and spare parts)

18 ｜KRONES Conference Call July 30, 2020

A Short View on our Regions (at present)

EU

NA

SA

MENA

APAC

CHINA

Ø Share of Sales

~ 38 %

~ 16 %

~ 12 %

~ 14 %

~ 12 %

~ 7 %

Order activities

CAPEX

Order activities

OPEX

(After Sales)

Challenges

_

✓ _

Customer contact

✓

✓

✓

✓

Service

✓

✓

_

✓ _

✓

✓

technicians

local

Service

✓

_

_

_ _

_

_

technicians

international

  • Currently approx. 450 of 2,100 technicians are not onsite because of Covid-19 - mainly in the central service pool in Germany
  • 40% of all projects considerably affected
  • In the 1st half of the year approx. 25% of installations and about 50% of acceptance tests postponed

19 ｜KRONES Conference Call July 30, 2020

Development of Plant Hungary 2019 - 2020

Update:

- Plant Hungary in full operation in Q1 2021

- Four-months delay in the final manufacturing relocation (Corona) and also in the subsequent assemblies (due to parts logistics)

- Five-month stop training due to

Covid-19 situation

- Capacity reduced to 30,000 hours per month (currently 9,000 hours)

Plant Hungary will deliver significant profit contribution in 2021

20 ｜KRONES Conference Call July 30, 2020

Krones Targets 2020

Reliable Outlook on Sales and Earnings not possible due to

Covid-19 Situation

21 ｜KRONES Conference Call July 30, 2020

Questions and Answers

? …

22 ｜KRONES Conference Call July 30, 2020

23 ｜KRONES Conference Call July 30, 2020

Financial Calendar 2020

November 12, 2020 Conference Call Group Q3 2020 and

Quarterly Statement as per September 30

November 12, 2020 Capital Markets Day

Olaf Scholz

Head of Investor Relations

KRONES AG

Böhmerwaldstrasse 5

93073 Neutraubling

Germany

Olaf.Scholz@krones.com

Phone

+49 9401 70-1169

24 ｜KRONES Conference Call July 30, 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.

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Krones AG published this content on 29 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 July 2020 07:30:07 UTC