The success factors behind German mechanical engineering company Krones
The European economy, with its leading light Germany, currently does not have a good reputation. A decline in productivity is diagnosed everywhere, notably in comparison to the USA. This crisis of competitiveness may be a given, and is perhaps fueled by gigantic spending programmes on the other side of the Atlantic. But one thing is also clear. In many places, corporations and medium-sized businesses in this country are creative, well managed, and capable of growth.
One example from the MDax, with revenues at the upper end of the spectrum, is Krones, with Christoph Klenk at the top. The share price reached an all-time high of 131.80 euros in May, and was trading at around 126 in mid-July.
The bull market naturally helps, but the success factors are diverse. The manufacturer of beverage filling and packaging systems, which generates sales of around 5 billion euros annually, has found an extremely competent expert in Klenk (60). A qualified mechanical engineer who can answer any question about the industry, and could easily handle the presentation at the Capital Markets Day at the beginning of July, can also takes over a small division when its top manager is on a long-planned special vacation. At the same time, he is clearly the boss– and his closer team knows exactly the direction in which the company is headed.
The company from Neutraubling, which the Kronseder family dominates, provides its CEO with an important resource for professional development – time. Klenk, whose current contract runs until the end of 2026, joined Krones in 1994 and has spent his entire career there, interrupted only by a two-year interlude at Mahr.
In 2004, he was appointed to the full board of directors, having previously been a deputy member. He initially oversaw the product divisions and research & development. In 2012, he moved to the finance department, and in January 2016, he became CEO.
International positioning
Things haven't always run smoothly since then. Sales fell by 16% during the Corona pandemic, a net loss had to be accepted, an austerity program had already shaken up the group, medium-term goals had to be abandoned, and the – ultimately successful – restructuring of the process technology division took much longer than expected.
But the supervisory board stuck with Klenk, and the CEO delivered the anticipated positive results. Since the financial crisis year of 2007, sales have increased by an average of 5% annually, and after all sorts of ups and downs, the Ebitda margin now seems to be permanently breaking through the 10% barrier. Krones delivers. Another success factor is passion. When Klenk looks at his team, he reports that in surveys, employees often reflect his vocabulary when they talk about their work. Ultimately, of course, it's all about earning a living. However, an identification with the product is unmistakable. Klenk doesn't shy away from being somewhat lofty about the task of supplying of water and drinks to the population, saying that "we serve humanity.“
Also important is the international positioning, which enables scaling and slows down competitors. „We serve customers everywhere," says Klenk, pointing with pride to the broad distribution of sales. The company is active in 152 countries, basically covering the globe, since although there are around 200 countries worldwide, dozens of them are small states in the Pacific islands.
CFO Uta Anders insists on proceeding carefully in discussions with analysts. At Krones you won't see the margin increasing by one or two percentage points in a year, she explains. Continuous development is more important. The price of this approach is that competitors are sometimes far more profitable. Competitors who, for example, are more active in the components business and individual, particularly profitable divisions, can boast an Ebitda margin of 18%. But Krones is extremely stable, and overall has a 4% margin.
Strong growth planned
No matter how well-managed Krones is, naturally the picture is not entirely rosy. After the price increases since the pandemic, customers are currently no longer accepting surcharges, and Krones has to adapt to this. In addition, Klenk cannot ignore China, which is why he is planning a tightly managed expansion there. At the same time, the risks in the event of a severe trade war must not be too high. It is a tightrope act.
This does not diminish Klenk's ambitions. He wants to accelerate the sales dynamics to 8% per annum in the next few years, and the margin should increase slightly. The foundations for this have already been laid.