Kuka's cooking

Enter the Robot Dragon

Kuka AG
Spot the robot. Source: dpa

Augsburg to Beijiao is no easy commute – the German and Chinese cities are on opposite sides of the planet.

But ever since the spectacular takeover of the German robot builder Kuka by Chinese electrical giant Midea last year, representatives from both companies have been shuttling regularly between their headquarter cities.

The Chinese have lost no time in establishing seven working groups to find synergies between the two entities. Kuka hopes these will find it new opportunities in the Chinese market, while Midea wants to work out how it can employ more of Kuka’s robots in its home appliance factories.

Even before Midea came along, business was already good for Kuka. Just-released results show it increased sales by 43 percent to around €1 billion ($1.2 billion) in the second quarter of this year – without any help from its Chinese majority owner.

“That was organic Kuka growth,” said Peter Mohnen, the company’s CFO, adding that Kuka had simply worked through the numerous orders on its books and managed to increase its forecast for the full year.

Chinese investors often give newly acquired businesses a long leash and are willing to invest even in economically difficult times.

Kuka is currently benefiting from steady growth in the robotics industry. The International Federation of Robotics, an industry group, reports new sales records for commercial robots practically every year. It estimates that sales of industrial robots will jump from the 260,000 sold last year to 414,000 by 2019.

One reason for this is China: factories in the country have a lot of catching up to do in terms of automating their assembly lines.

Robots have long been used in the production of cars and now they’re becoming more common in other industrial sectors as well. Plus, manufacturers like Kuka are producing ever smaller and more sensitive robots, which can work directly next to humans. According to the IFR, the boom should allow many high-wage countries to retrieve manufacturing jobs, which had been outsourced due to cost savings.

Kuka is one of the greatest beneficiaries. In 2017, the company is predicting a 9 percent rise in sales to €3.3 billion, and an unadjusted return of more than 5.5 percent. In the second quarter of this year, the company managed 5.4 percent.

In last year’s deal, Midea secured 95 percent of Kuka’s shares, triggering a heated debate about an imminent sell-off of Germany’s most prized technology companies and know-how.

At the time, Kuka was valued at €4.5 billion – a hefty price with a strong premium on top of its share price. But Midea didn’t only buy Kuka’s robotics division, which is responsible for about a third of its turnover. It also bought the company’s automation sector and its low-yield logistics specialist Swisslog.

Planning for the two companies’ future seems to be under control. “The cooperation is going very well,” Mr. Mohnen said. And there has also been reassuring news for the German workforce. A few days ago, Kuka announced that it would be investing more than €100 million in the expansion and modernization of its Augsburg headquarters in the coming years. Midea has also assured its new German employees they would not lose their jobs or be forced to relocate.

03 p20 Kuka-01

Despite the uproar over China’s buying spree in Germany, Kuka is far from the only German company that has had good experiences with a new Chinese owner. Many have noted that Chinese investors often give newly acquired businesses a long leash and are willing to invest even in economically difficult times.

Krauss-Maffei, which makes machines for the plastics industry, is one. Chemchina, the largest chemical company in the communist state, partnered with financial investors to take over the Munich-based company for nearly €1 billion last year, the largest takeover of a German company by the Chinese at the time. Investors were able to help Krauss-Maffei optimize its costs and Chemchina has been able to help the company realize its full sales potential in the Chinese market.

Kuka will be hoping Midea can perform the same trick for its business.

 

Axel Höpner is head of the Handelsblatt office in Munich, focusing on the state of Bavaria’s companies. To contact the author: hoepner@handelsblatt.com

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