Interim report to the third quarter 2014

KUKA confirms targets for 2014 following strong third quarter

• Orders received rise 21.3 percent to € 1,741.7 million in 9M/14
  Growth accelerates in Q3/14: +30.0 percent to € 556.0 million
• Sales revenues rise 13.6 percent to € 1,507.9 million in 9M/14
  Both Robotics and Systems set new quarterly records in Q3/14
• EBIT margin at 6.5 percent in 9M/14, despite integration and restructuring of Reis Group (9M/13: 6.6 percent)
  Reis Group achieves turnaround: Q3/14 EBIT positive
• Free cash flow posted at € 71.3 million in 9M/14 compared to € 79.3 million in 9M/13
• 2014 guidance confirmed: sales expected to reach about € 2.0 billion and EBIT margin about 6.5 percent

BUSINESS PERFORMANCE

KUKA Group sales and profitability continued their upward trend in the third quarter of 2014. Dr. Till Reuter, CEO of KUKA AG: "The results in the first nine months were outstanding, and we are very confident that we will hit our targets for fiscal 2014 overall. We are currently experiencing high, stable demand from our customers, with very positive signs from China and the United States."

Orders received were up 30.0 percent year-over-year, rising from € 427.7 million in Q3/13 to now € 556.0 million overall. Included in this result are the contributions from Reis Group and Alema totaling € 26.4 million. Cumulative orders received for the first nine months of 2014 were reported at € 1,741.7 million, which reflects an increase of 21.3 percent. The trend toward automation remains steady. The robust growth is being driven by both the constant high demand from automotive customers and the rising general industry orders received.

The Robotics division's orders received were up slightly in the third quarter, rising from € 178.7 million (Q3/13) to € 185.1 million, an increase of 3.6 percent. They rose 4.8 percent in the first nine months of 2014; from € 599.2 million after nine months in 2013 to € 628.2 million this year. The growth was primarily driven by the slightly higher orders than last year during the same quarter from the service and automotive segments. General industry orders were nearly the same as last year.

The Systems division's orders received in the third quarter of 2014 came in at € 377.8 million, up 49.4 percent from the € 252.9 million posted in Q3/13. Adjusted for the newly acquired companies, orders received were 38.9 percent higher than at the same time last year. This strong growth resulted mainly from the rising demand for automation solutions in the aviation industry and the steady demand for automation from the American automotive industry. For the first nine months of 2014, orders received jumped 32.9 percent; from € 856.2 million after nine months in 2013 to € 1,137.7 million. Adjusted for the contribution from the acquisitions, growth came in at 19.9 percent, or € 170.1 million.

KUKA Group generated sales revenues of € 539.3 million in the third quarter of 2014, a new record. In Q3/13, sales revenues were € 454.1 million. The Robotics and Systems divisions both also generated record sales during the quarter. The newly acquired companies contributed € 32.8 million to Group sales. The increase of 18.8 percent compared to the same time last year was due mainly to the strong orders received in the first half of 2014. Sales revenues for the first nine months were reported at € 1,507.9 million, 13.6 percent higher than the revenues of € 1,327.6 million after nine months in 2013.

The Robotics division's sales hit a new all-time high of € 222.4 million in the third quarter of 2014, up 24.1 percent from the € 179.2 million generated in Q3/13. Demand was seen from all customer segments. Automotive, general industry and service all helped drive the double digit year-over-year growth that led to the new record. The sales growth reflects the high orders received in previous quarters. For the first nine months of 2014, sales revenues climbed 8.8 percent; from € 570.3 million after nine months in 2013 to € 620.3 million.

The Systems division also contributed a record amount to Group sales in the third quarter of 2014. Sales revenues came in at € 324.5 million, up 15.2 percent from the € 281.7 million reported in Q3/13. Adjusted for the acquired companies, third-quarter sales totaled € 291.7 million, 3.5 percent higher than the number reported at the same time last year. Automotive sector growth in Europe, China and the United States, together with rising aviation industry sales, positively impacted Systems' organic revenue growth. Cumulative sales revenues to the end of the first nine months totaled € 903.3 million, with an organic share of € 810.1 million. This represents growth of 16.3 percent from the € 776.4 million reported in the first nine months of 2013.

Book-to-bill in the third quarter of 2014 was 1.03. For the first nine months of 2014 it was 1.16, compared to 1.08 after the first nine months of 2013. Order backlog reached a record € 1,286.1 million at the end of the third quarter of 2014, up 28.1 percent from the € 1,003.7 million posted on last year's record date of September 30, 2013. The order backlog share included for the newly acquired companies was € 94.4 million on September 30, 2014.

KUKA Group's earnings before interest and taxes (EBIT) for the third quarter of 2014 came in at € 36.8 million. This is up 22.3 percent from the € 30.1 million generated during the same quarter last year. EBIT margin was also up slightly, rising to 6.8 percent from 6.6 percent in Q3/13. Reis Group achieved its turnaround in the third quarter of 2014, with EBIT positive. Despite the costs of integrating and restructuring Reis Group, EBIT for the first nine months of 2014 was up 12.0 percent year-over-year, rising from € 87.5 million to € 98.0 million. EBIT margin in the same period was at the target level of 6.5 percent, down only slightly from 6.6 percent in the first nine months of 2013.

Robotics' EBIT rose 43.1 percent, from € 18.1 million in Q3/13 to € 25.9 million in Q3/14. Profitability improved due to the record sales generated by service and general industry. EBIT margin in the third quarter of 2014 set a new quarterly record of 11.6 percent and was sharply higher than the 10.1 percent reported for Q3/13. EBIT in the first nine months of 2014 was € 67.3 million and EBIT margin was 10.8 percent. At the end of the first nine months of 2013, the numbers were € 57.7 million and 10.1 percent respectively.

Systems' EBIT increased by 30.5 percent, from € 16.7 million in Q3/13 to € 21.8 million in Q3/14. EBIT margin rose from 5.9 percent in Q3/13 to 6.7 percent in Q3/14. Strong customer demand supported the growth of the division's organic business and thus its profitability in the quarter just ended. EBIT for the first nine months of 2014 came in at € 49.8 million, compared to € 43.6 million during the same period last year. EBIT margin was 5.5 percent compared to 5.6 percent after nine months in 2013. What makes this result even more satisfying is that Reis Group has been included since the beginning of 2014 with a negative EBIT of about € 10.0 million.

Earnings after taxes were up from € 41.7 million after nine months in 2013 to € 45.1 million after nine months of 2014; this in spite of a one-time charge of about € 18.0 million to redeem the high yield bond in the first nine months of fiscal 2014.

Free cash flow for the first nine months of 2014 was reported at € 71.3 million versus € 79.3 million for the first nine months of 2013. For the third quarter of 2014, free cash flow was € 48.3 million. This makes the eighth consecutive quarter free cash flow has been positive.

OUTLOOK

Given the current economic forecasts from the international monetary fund (IMF), KUKA expects increased demand in fiscal 2014, particularly from North America and Asia, especially from China. Overall, current economic trends should have a positive impact on earnings. From a sector perspective, general industry growth is expected to be strong. This is due in part to the high potential for automation solutions, as well as the positive economic prospects for general industry customers. Capital spending by the automotive industry has been high over the past few years.

Based on current general conditions, KUKA expects sales revenues of about € 2.0 billion, up about 10 percent from last year. The newly acquired Reis Group will contribute to the sales growth. Based on the current economic general conditions, KUKA Group is expecting an EBIT margin of about 6.5 percent for fiscal 2014. The main reason it is expected to be slightly lower than last year is the first-time consolidation of Reis Group. A one-time expense related to the integration and restructuring of Reis is included in the first half year of 2014 in this regard.