Krones is a team event

How was 2015? 

We recently published our financial results for 2015 and can say it was good all-in-all. But we know that our customers’ expectations keep growing and, so, we continually ask ourselves these things: How can we best meet our customers’ wants and needs? How can we further optimize our closeness to customers and customer satisfaction? How can we deliver even better service? There’s always something we can do better.

And how was 2015 for you personally?

A “normal” year, really. A good year. But it would be presumptuous of me to say it is “no big deal” to be the first person from outside the Kronseder family to have the honor of leading this highly successful company. I worked in sales for six years, spent ten years as the Executive Board’s Chief Technology Officer, then four years as Chief Financial Officer, and am now CEO. That’s quite a change in perspective. It’s also interesting how you are perceived differently. You might think going from CFO to CEO is just a matter of switching out a letter. But it’s really quite something to actually do it! So, 2015 was a year of big changes for me. 

How was your first day as CEO?

Good question. Honestly, I can’t really remember my first day as CEO very clearly anymore. If you know Krones well, you know that we discuss everything that relates to the company as a team. So, it wasn’t as if I was suddenly made privy to a great secret. There were no strategy issues I wasn’t already familiar with. And, of course, Mr. Kronseder and I had already discussed the transition quite a lot, often together with our Supervisory Board Chairman, Mr. Baumann. In the end, it was typical Krones – very relaxed.  Let’s talk about your staff. The particular way your German employees have of saying they work for Krones sounds like they are personifying the company, like it’s family. What’s it like then, when the “head of the family” changes? I’ve gotten to know the company from many different perspectives – sales, technology, and finance. So, I was able to be fairly relaxed about the change and tried to share my sense of calm with our workforce through my communication with them. I’ve carried on Mr. Kronseder’s tradition of walking the plant floors, maybe even extending those walks a bit. Our employees have noticed that they can talk to me like they talked with Mr. Kronseder – that nothing has changed on that score.

Let’s take a look back. Without referring to financial data, how has Krones changed?

Really, it hasn’t changed all that much. Team spirit is our lifeblood and we continue to work every day to make things as they should be. Our job now is to keep that spirit alive and to further develop that know-how and expertise that has grown over decades and is reflected in Krones’ comprehensive range of products. On the other hand, we have to manage the company. We now have over 13,000 people around the globe whom we have to lead in accordance with the same mission statement and the same values. The company has developed strong and steadily and we’re all very proud of that at Krones. At Krones, it’s all about teamwork

How have you developed or changed?

(laughs) I don’t know if time has changed me. I have worn a lot of different hats, looked at things from many different points of view. The fact is, whether you’re in sales or engineering, you have to dig deep and understand what our customers value. As CFO, you have to understand how the company is performing and optimize that performance. But here, too, customer satisfaction remains a key aspect. In every position I have held, I have gained an exceptional amount of experience. Looking back, the most important thing I have learned is that everything is best handled as a team. Of course, that also means being able to step back and really cooperate to accomplish results. What can I tell young engineering students at the University of Applied Science what they need to bring to the company in order to make a career for themselves at Krones? That’s a good question, to which I have a short answer: Show initiative, think logically, and use your common sense. Think proactively. In other words, ask yourself: What does my coworker need? What does my team need? What does the customer need? And how can I contribute? My advice would also be to put “We” front and center. Because people who think in team terms are our lifeblood. Now let’s talk about Krones’ business development, which has been marked by steady growth. Does this growth guarantee stability? It certainly helps, along with a few other factors. But we are also aware that we operate in a market that exhibits stable growth. That has to do with world population growth, increased urbanization, and increasing diversification at the point of sale. Let me say this about market stability: While it is true that we are seeing 4.5% growth in beverages and packaged containers, we know that we can no longer replicate this level of growth equally across our entire machinery portfolio. A machine that once ran 600 bottles per minute is now running 800 or 900 bottles per minute. But the price of those machines hasn’t increased by the same percentage. It’s important to keep in mind that market growth doesn’t translate one-to-one into machinery revenue. But all in all, growth does give us a great deal of stability.

Krones’ growth strategy includes machinery innovations. Will it be enough, in the future, to focus on mechanical engineering? Or will you need to shore up your growth strategy with other concepts and services? 

First, I’d like to point out that Krones offers services alongside our machinery, bundled in our Lifecycle Services (LCS) operations. It’s almost impossible to imagine the one without the other anymore. I’m sure the same is true of our competitors.   For us as a company, plant planning and complete solutions have always been important, whether we were talking about breweries or turnkey plants for the beverage industry. Both were already essential long before digitalization because it’s there that we can really take a good look at the entire process and optimize the total cost of ownership of a beverage plant in a very different way than we can by looking only at individual components in the planning stage or in operation. To ensure that customers can manage their cost structures and availability well, we have to understand their business models and how everything fits together, from the complete factory down to the individual machine components – and then we have to offer solutions that match that.

Digitalization – key factor for the future

What does Krones have in the pipeline to support customers even better in the future, to ensure that they achieve their targets?

When I look to the future, I definitely see a tighter integration of process technology and traditional filling technology, driven by cost and efficiency considerations. The packaging part of the line and the “end of line” area, that is, intralogistics, are also becoming increasingly important because customers want to optimize these processes. Finally, we see digitalization as a key factor for the future.

Didn’t Krones start addressing the whole notion of digitalization with Syskron before the term “digitalization” was even coined? 

That’s right. With Syskron, we started working on intralogistics pretty early. There were pauses in business now and then, but the brand name was still good and valid on the market. In 2014, we reactivated Syskron and added to it by acquiring a small company that specializes in SAP consulting. We can now offer our customers cost-effective solutions for their logistics and material flow needs, in SAP as well as whatever individual systems they run, and connect them with our filling, packaging, and process technology systems. I think you can call that digitalization.

Innovative production technologies: How do you see the Internet of Things and its implications for Krones as a machinery manufacturer?

In manufacturing and production we’ve always done a good job of both and we will continue to do so. We’ve already got a showcase example in our pipe machining center. It’s a great example of connectivity that is frequently highlighted on plant tours.  

Of course, Industry 4.0 doesn’t just apply to Krones as a supplier. It also affects customers. What line improvements has digitalization made possible? More specifically, what can customers expect from Krones in terms of making their production even more cost-effective and/or more sustainable?

We look at what is important to our customers, how we can help them within their business models with Industry 4.0, IoT, Connectivity. I think line availability will improve further, for example, as machine status becomes more predictable and as changeovers are optimized further. There is more potential for increasing efficiency here.

Digitalization isn’t just about connecting 500 billion devices. There’s more to it than that. The challenge is in the processes. Can companies – machinery manufacturers, converters, and bottlers – examine their current processes in such a way that they create new ones? Or will the new processes “invent” themselves?

Yes, I am certain that, for instance, machinery manufacturers will have to refresh their own thinking. Digitalization has to become part of their DNA. Otherwise, they will eventually fall behind. While it is true that, as machinery manufacturers, we are not “IT people”, we have to address IT within our structure. More and more. We are already doing that and are widening our view, whether through Syskron or other companies in this area.

Does the machinery and equipment sector need a new generation of managers, a new kind of manager with digitalization in their DNA, as you say? 

We can’t wait for that. The current generation has to live with these rapid changes and manage them. What is extremely important and should not be underestimated is the experience base of our seasoned engineers. Nothing works without know-how. And we have a vast wealth of experience relating to technical developments, manufacturing, production, and customer and market responsiveness. All that will certainly give us a leg up in our digital evolution.  What I also find especially interesting is that issues relating to digitalization have a much stronger “project” feel to them that poses challenges in terms of how to integrate them into a hierarchical, structured company.   Germany is an attractive place
for doing business worldwide

In this respect, how important are depth of production
and Germany as a business location for Krones?

When we look at the big picture, Germany is an extremely attractive location for machinery manufacturers, in terms of both cost and knowledge base. In a single year, we’ll deliver to more than 150 countries. Where else can you find comparable conditions for accessing and serving all those countries? Sure, we are always working to improve our systems’ productivity and we have reduced the depth of production in certain areas. Of course, we use a supply chain outside Krones that keeps pace with international standards. Had we done otherwise, we may not have been able to achieve the same level of growth in recent years. But focusing on core expertise and flexibility to keep turnaround times short – that is key. Let’s talk about financials at Krones. There are two ways to improve margins and profitability – from the income side and from the expense side. On the income side, I think of innovations and acquisitions. We have made a few smaller acquisitions in the last three years. If it fits into our strategy and our overall concept, we intend to pursue more external growth. If it complements our portfolio of products and technology. On the expense side, lead times, how long our assembly areas are occupied, and availability all play a crucial role. Here, we use all of the options – and innovations – available to us to shorten lead times. 

On the topic of technology and PET, stretch-blow molding technology is well established and Krones and PET recycling are a familiar concept. What’s happening with “barrier PET”?

We have made two big attempts so far. So, we have the expertise here within the company and have been working to evolve the technology. But my personal opinion is that obtaining gas barriers is really going to require an additional machine in the line. Even if it means potentially reducing the efficiency of the entire line. And the machine is expensive. That’s the one side of it. The other side is that this technology could help us tap new markets with PET.  

What’s new in recycling at Krones?

Ten of our PET recycling systems are already in operation. The latest is just getting up and running in South Africa – with CC approval. There is no dearth of investment happening in this area. The biggest issue is procuring and securing material streams.

Sustainability and environmental stewardship as driving force  

With so much focus on reducing costs, doesn’t PET technology itself get short shrift? Have we already exhausted PET’s technological potential? Is cost the “only” thing PET bottles have going for them?

Technology and mechanical engineering are definitely still in the game when it comes to PET. Look at the increases in machine performance in the last several years. How many times have we broken through what was supposed to be an insurmountable barrier? Or look at how much lighter bottles and caps have become. It’s almost inconceivable, how much has happened in the last several years. And when I see what our customers still have in mind to do, I know this isn’t the end of the road. Lightweighting has two components: On the one hand, it’s about reducing costs. But on the other, it’s about sustainability. In your last issue of comPETence, you asked, “Are we green enough?” I don’t think any industry is even close to “green enough”. Especially when it comes to resource conservation. And it’s not just about conserving raw materials. We also have to look at the waste we generate and what we do with it. Plastic waste is a major challenge. That’s one of the reasons why we got into PET recycling. Was another reason the fact that returnable glass and PET bottles were on the decline? Surely, that has impacted Krones’ sales of bottle washers. Yes, that’s true. But the decision was not necessarily a business-driven one. The most important factor was and remains sustainability and our desire to practice good stewardship for future generations. I met with our CSR Team earlier today. We examined our CSR activities as a whole. New issues keep cropping up with respect to PET and other plastics. Even if consumers – myself included – like PET, it is causing problems in some countries. And that brings us back to material flows. We have to finally learn to handle them properly. The recycling technology is there. 

Is the promotion of sustainability good news for bloc systems?

The best example is our ErgoBloc, which features an integrated labeler. It is ultimately the evolution of bloc systems towards sustainability. The bottles are so light that they wouldn’t work with the conveyors on a traditional line layout. We have also optimized the cap and preform feeders to account for this.  What’s interesting in this context is that the first ErgoBloc was unveiled at a trade fair about six years ago but it took two to three years and “road testing” before customers were convinced of its benefits. That shows how long the start-up phase is before new, sustainable developments get established on the market. These days, we are selling 60 to 70 of these systems each year.

Krones has demonstrated its commitment to sustainability with the enviro program. Do customers share that same awareness? Are they willing to pay for the added value?

I am convinced that, at the end of the day, you can’t afford not to anymore. Energy awareness and sustainability have to be rooted in the machinery sector and they have to be transparent for customers in such a way that they can match their cost structures and achieve their targets. If we look at preform and bottle sterilization in aseptic filling, we see that TCO can be changed and lightweighting becomes possible. For example, when preform sterilization can happen at completely different temperatures from bottle sterilization. Now, our employees aren’t so much asking how much new developments save in terms of energy or water consumption but instead simply ask, “Does it meet enviro criteria?” In other words, we have created an internal label that says it all when it comes to sustainability.

Team spirit and customer satisfaction – hallmarks of Krones 

After those technical details, let’s take a broader view. What are your favorite topics at Krones?

Off the top of my head, Krones is my favorite topic. If I had to list my favorite topics at Krones, customer satisfaction would take the first spot. Customer satisfaction is a key priority for a company. Sounds simple. But it’s actually complex. Of course, you have to address economic matters, no question about that. The second topic on my list would be teamwork. To create a good, complete solution that really works for our customers, our employees have to look and think beyond their own workstations. I guess that takes us back to team spirit, the Krones spirit that we intend to preserve.

To be among the top companies in the industry in 2030, you have to identify new trends, study them, and prepare for them. For the beverage industry, what trends do you see for packaging – glass, cartons, cans, pouches, and PET especially?

I believe there are things we may not see yet but that there are indicators we have to look at very closely. I think it’s difficult to forecast more than five years out. Several years ago, we took the chance and made a forecast regarding aseptic lines. We figured the market potential for Krones over the course of 10 years at around 45 lines. Today, we have more than 300 in operation. So much for forecasts. On the other hand, I would say that companies that want to be in the game in 2030 will need to be agile and have fresh energy and ideas in order to address all the new issues. And I think we’ll definitely be in there with Krones.

What do you think of the business outlook for 2016? 

The year 2016 has a whole different set of problems compared with previous years. A lot of things are a mess around the world – economically and politically. It remains to be seen how our customers’ capital spending will develop. So, 2016 will be a year full of new challenges.

In economic times like these, competitive pressure also increases. How do you intend to set Krones apart from the competition going forward?

As I see it, our competitive environment is relatively stable, with respect to the big players in the bottling world. In process technology, there are other companies that are certainly more established than we are. We also have quite a few competitors in logistics. We are keeping a good eye on them – and I’m sure they are keeping a good eye on us. At the end of the day, it’s up to the customers. They are the ones who will keep suppliers in competition with each other and keep things cooking in the industry. So, our intention is to deliver a good package to our customers, regardless of whether it’s about initial outlays, output, or line reliability – it’s all about TCO.  Does that set us apart from the competition? I’m sure our counterparts at other companies are also doing a good job and that’s okay.  

Where is Krones headed?

– With you at the helm?

– With respect to (global) market demands

Krones isn’t steered by a single individual but by an entire executive team. So, whether I am CEO or someone else, our course will be determined as a team and won’t be influenced by my presence or absence. Our customers are our primary focus and we have to work hard every day to provide them with outstanding solutions. If we succeed, it will be easy to hold steady.

Mr. Klenk, I’d like to thank you for this detailed discussion and wish you all the best for the next 100 days and beyond.