business and business environment
the integrated business model
kuka focuses on robot-supported automation of industrial manufacturing processes and is thus active in the mechanical and plant engineering sector. kuka ag is listed on the German stock market index for medium-size companies (mdax) and has a market capitalization of about € 300 million.
New management team.
Since January 1, 2009, the company has been led by kuka ag’s two-person Executive Board and two divisional heads, who are responsible for the business operations of kuka Roboter GmbH and kuka Systems GmbH. kuka ag’s Executive Board establishes the strategies for the domestic and foreign markets and is responsible for overall operational management, as well as Group issues. kuka Roboter GmbH and kuka Systems GmbH are the management companies of the Robotics and Systems divisions. Regional subsidiaries in 25 countries support the divisions worldwide. These branch offices are responsible for the sale of the divisions’ products and services and do the local assembly and field service work.
kuka robots are used in almost all industries.
kuka ag and its management companies kuka Roboter GmbH and kuka Systems GmbH are headquartered in Augsburg. This guarantees close cooperation between all Group entities. Other European subsidiaries are located in Great Britain, Belgium, France, Spain, Italy, Sweden, Slovakia, the Czech Republic, Hungary and Russia and elsewhere. Another important business area is North and South America, with companies in greater Detroit / Michigan, Mexico and Brazil. In Asia, kuka has representatives in India, Malaysia, South Korea, Taiwan, Japan and China.
kuka’s integrated business model has three cornerstones. From a market perspective, closer cooperation between the divisions’ key account managers should generate more synergies, particularly in selling to the automotive industry. In the research and development area, the number of projects that are jointly brought to market readiness at the Innovation Center is steadily increasing. Furthermore, the divisions were relieved of common tasks such as accounting and payroll, which are bundled centrally at kuka ag’s Shared Service Centers in Augsburg. The goals of these steps are to increase the synergies within the kuka Group through closer cooperation, develop standardized processes, strengthen the divisions in view of the deteriorating economic environment and concentrate the core competencies to the benefit of both divisions.
kuka robotics
In the integrated business model, the Robotics division delivers the core component, robots, which are used in the automation of manufacturing processes. kuka Robotics develops, manufactures and sells industrial robots, which are used in almost all industry sectors. The division’s product portfolio comprises six basic modular types with many mechanical and electrical infeed options. All new robots and applications are developed, designed and finally assembled at the Augsburg center. Certified suppliers deliver project-related robot components. kuka Robotics targets the automotive sector, general industry and service. Key account managers service the automotive industry. About 80 systems partners that specialize in the various sectors look after sales and service of kuka robots in general industry.
kuka robotics –
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kuka robotics –
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Source: kuka and market information
The Robotics division sees itself as a global innovation and technology leader. kuka is the market leader in the automotive industry, with a market share of about 20 percent. kuka did not begin targeting general industry until the year 2000, but has since captured a market share of about 10 percent.
kuka systems
Divisions technology leaders in their target markets.
In the integrated business model, the Systems division contributes application engineering expertise for automating manufacturing processes. kuka Systems acts as a general contractor, designing and building complete systems. In addition to utilizing its application-oriented robotics expertise, the division employs many other metal forming and joining processes in its designs. The Systems division has designated regional centers of expertise to execute systems projects: Augsburg for Germany and Europe, greater Detroit for North America, and Shanghai for the growing Chinese market. Local subsidiaries that are close to the customer support these centers and independently process small orders.
In the automotive industry, kuka Systems focuses on flexible manufacturing lines for making vehicle bodies. Several different models or variants of a particular model can be built using these systems. Other business segments include press tool manufacturing and automated assembly lines for engine and transmission components. These entities are located in Schwarzenberg / Erzgebirge, Slovakia and Bremen, as well as greater Detroit, Michigan.
kuka systems – competitive position
Source: kuka and market information
kuka Systems’ share of orders awarded by the automotive industry to third parties is about 25 percent, making it the market and technology leader in this sector. The division is expanding into technically comparable general industry sectors such as the aircraft and solar industries.
strategy
Market conditions have deteriorated significantly since mid-2008. kuka’s strategy to address the situation is as follows:
- safeguard the core automotive industry business
- accelerate expansion into general industry, particularly in the American and Asian regions
- develop new business sectors
Accelerated expansion of general industry business.
As a result of the global economic slump in 2008, the automotive sector has had to contend with declining passenger vehicle sales for the first time in almost 20 years. Capital spending on new models and production lines has thus been postponed and order volumes reduced since the second half of 2008. At the same time, carmakers, some of which have underutilized factories, are competing harder for the reduced number of consumers still purchasing vehicles. Capital spending that will enable the introduction of new types of cars to the market, particularly cheaper and more fuel-efficient models, could therefore pick up again soon in the Western industrial regions. In the bric nations (Brazil, Russia, India and China) the demand for vehicles, and therefore also robot-based automation for factories, continues to increase due to expanded export activities. Because of its worldwide presence, kuka’s robot and systems businesses can compensate for shifts in demand from the industrial regions to the emerging countries.
In general industry – that is, all sectors other than the automotive industry – investments to streamline operations and cut costs will continue to play an important role, particularly in times of weak earnings. kuka Robotics has grown faster than the overall market in this segment over the past three years. The highest growth rates were achieved in the metals machining and processing industry, machines and systems, as well as the plastics, food and logistics sectors. Other target markets are new applications for assembly and service robots, as well as healthcare technology. kuka Systems concentrates on related sectors that are switching from manual to automated manufacturing. The solar and aircraft industries are two key segments. Thanks to kuka’s robot-supported automation solutions, the company enjoys an excellent position in general industry.
Target ebit margin achieved, excluding one-time charge.
On March 19, 2008, kuka ag released target growth numbers for orders received in 2008: 10 percent for the Robotics division and 5 percent for the Systems division (adjusted for non-operative effects). As a result of the economic decline, the Group’s planned growth numbers were consolidated and reduced “to last year’s level, excluding non-operative factors” on November 4, 2008. The actual adjusted consolidated growth for orders received was 0.1 percent. The most recent target number for orders received in 2008 was thus achieved.
kuka robots in an automotive assembly plant.
The kuka Group’s target number for ebit margin in 2008 was 5.5 percent. The actual ebit margin reached was 4.1 percent, including a one-time charge resulting from the cancellation of a major systems order from a North American automotive supplier. Without this one-time charge, ebit margin would have been 5.7 percent and would therefore have exceeded the 2008 target number of 5.5 percent.
internal management system
The internal management system ensures that the Group’s key indicators are transparent, which enables them to be systematically strengthened. kuka ag’s financial targets are performance indicators that affect the value of the company.
In order to determine return on sales, the operating result (ebit), i. e., earnings from operating activities before interest and taxes, is compared to sales revenues. This is the ebit margin. To determine the return on capital employed, the operating result (ebit) is compared to capital employed, which gives the return on capital employed, or roce. The operating result (ebit) and roce are determined for the Group as well as the Robotics and Systems divisions. Free cash flow; that is, cash flow from operating and investment activities, shows whether the investments can be funded from cash flow, and how much cash is available for payment of dividends and debt servicing. This indicator is used at the Group level. The weighted average cost of capital (wacc) for the divisions and the kuka Group will be 9 percent after taxes over the 2008 – 2010 planning period.
Orders received is an important early indicator of business growth and is continuously monitored at the divisional and regional level, while order backlog indicates the degree to which the company’s capacity will be absorbed in the coming months of the current financial year.
All key indicators are tracked and reviewed continuously using the internal reporting system. Any deviations from plan are analyzed by management and, if necessary, agreement is subsequently reached on the corrective actions required to achieve the targets.