World's Biggest Money-Printer Maker in Search of a New Currency

(Bloomberg) -- Germany’s Koenig & Bauer AG, the market leader for machines that print our banknotes, is challenged by e-commerce, mobile payments and digital currencies. The 201 year-old company’s answer is to push into markets such as printing on Coke cans.

“Here we are attacking the former monopolist”, Chief Financial Officer Mathias Daehn said in an interview at the company headquarters in Wuerzburg, referring to Stolle Machinery, a unit of Japan’s Toyo Seikan Group Holdings Ltd while picking a lidless Coke can from his windowsill.

Koenig & Bauer dominates the market for printing on three-piece food cans, but the more sophisticated printing of two-piece containers for beer and Coca-Cola is largely in the hands of Stolle, Daehn says.

While the global market for two-piece can printing is about 600 to 800 lines printing around one billion cans per day, Koenig & Bauer recently bagged two customers that have been testing its machines since the beginning of the year. In addition to high output, the machines allow for a “drastic” reduction in changeover times, Daehn said.

“We are confident that we will soon be selling more machines,” Daehn said.

Printing on beverage cartons is another segment where the company plans to stir up the market with super-fast machines, after entering the flexible packaging printing segment in 2013 with the acquisition of Italy’s Flexotecnica SpA, tripling its market share to nine percent.

That’s an area where the manufacturer wants to “really accelerate,” having launched a machine for full-color digital printing on beverage cartons, Daehn said. As manufacturers have to print new designs ever faster, the company’s technology will show its benefits, resulting in more deals such as a recent sale to Tetra Pak, a key customer, the CFO said.

Cash printing machines still king

Despite the rise of digital payments, the banknote printing machines business is set to remain strong.

“In high-margin security printing, where we hold over 90 percent of the world market, we continue to see a good development with a stable new machines business,” Daehn said. “Especially emerging markets need increasing amounts of cash, as cash in circulation closely correlates with gross domestic product”, Daehn said, countering reports that banknotes are becoming obsolete because of the advance of cashless payments.

Koenig & Bauer, in which Chief Executive Claus Bolza-Schuenemann, great-great-grandson of the company founder, and his family still own about one-fifth of the shares, is tight-lipped about the buyers of their banknote printing machines. However, Daehn confirmed that all U.S. dollar and euro banknotes are printed on the company’s machines. In August, Giesecke+Devrient ordered several lines for production of banknotes in Egypt, helping the company’s “Special” segment to outgrow its other businesses.

Koenig & Bauer’s leading position in printing money is based on its research and development efforts, Daehn said, pulling a bill from his wallet, a specimen printed with a machine of his company. A hemisphere seems to bulge out of the paper. Koenig & Bauer calls the technology "Susi Optics" and claims it is one of the strongest security elements currently available. From May, a similar feature will be printed on new banknotes for circulation, he says.

In March, the manufacturer reported a third consecutive year of revenue growth. After downsizing operations in the first half of this decade, newspaper printing, which once made the company big, is now just over one percent of new business, but profitable again, the CFO said.

The first two months of 2019 have been “very pleasing,” Daehn said. "The project situation is good and the orders are good, too."

Little cyclical business

“Koenig & Bauer is entering new, dynamic markets with innovative products,” Henning Breiter, an analyst at Hauck & Aufhaeuser, told Bloomberg. Tetra Pak alone would have the potential to buy machines worth 700 million euros ($784 million) from Koenig & Bauer, he said.

Management’s optimism at the beginning of 2019 is “very encouraging,” underpinning the company’s target for four percent revenue growth this year, Breiter said, adding Koenig & Bauer’s financial targets for 2023 are “quite conservative.” The company today is more comparable to industrial equipment makers such as GEA Group AG, Krones AG or Andritz AG than to traditional printing press manufacturers that have lower profitability, he said.

Based on earnings estimates for 2019, Koenig & Bauer’s price earnings ratio stands at 11, compared to 19 for GEA and 16 for Krones, and well below providers of cashless payment solutions such as Adyen NV or PayPal Holdings Inc. which trade at 111 and 37, respectively.

--With assistance from Richard Weiss.

To contact the reporter on this story: David Verbeek in Frankfurt at dverbeek1@bloomberg.net

To contact the editor responsible for this story: Erhard Krasny at ekrasny@bloomberg.net

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