Heidelberg Financial Year 2011/2012
Against the backdrop of economic uncertainty during financial year 2011/2012 (April 1, 2011 to March 31, 2012), Heidelberger Druckmaschinen AG (Heidelberg) has set the basis for long-term profitability with new products, a new organization, and stable financing.
It aims to continue building on the company's leading position in a restructured market environment within the print media industry and to successfully market its development, production, and service expertise outside the industry as well.
The company is well on track to achieving this goal through the Focus 2012 efficiency program, which includes measures to cut costs and capacities and to restructure the organization. What's more, Heidelberg has reassigned the Board members' responsibilities with effect from June 1, 2012 with a particular focus on optimizing global sales and strengthening activities in the growth regions, which are expected to produce around 40 percent of the global sheetfed offset print volume in the future. The positive start to financial year 2012/2013, with the launch of numerous innovations at Drupa and high order volumes, confirms that the company is on the right track with the direction it is taking.
Stable business development in 2011/2012 amid economic uncertainty: Figures in line with preliminary calculations
The final figures published by Heidelberg for financial year 2011/2012 match the preliminary calculations at the end of April. Despite weak development in the industry in the second half of the financial year, Heidelberg achieved sales on a par with the previous year. However, the company failed to achieve the targets it had set itself for the year under review due to changes in the underlying conditions.
“The second half of financial year 2011/2012 in particular was shaped by great uncertainty. However, the positive results of the leading trade show Drupa showed that confidence within the industry is returning and that the reticence to invest is slowly abating,” said company CEO Bernhard Schreier. “At Drupa, Heidelberg presented itself impressively as market leader, innovator, and integrator of new technologies. We have developed the right solutions in response to global trends within the industry and have integrated suitable applications from strategic partners — we could thus set us apart from the competition in a clearly positive way.”
At a total of EUR 2.555 billion, incoming orders were down 7 percent on the previous year's figures (EUR 2.757 billion), which had been boosted by the trade show successes at ExpoPrint in Brazil and IPEX in the UK. In the first half of the year under review, the order volume of EUR 1.333 billion slightly exceeded the level of the preceding half year. However, the second half of the year was hit by a worsening of the underlying economic conditions and restrained investment activity in the fourth quarter in anticipation of Drupa, resulting in orders of EUR 1.222 billion.
After adjustment for exchange rate movements, total sales in the year under review reached EUR 2.596 billion, roughly on a par with the previous year (EUR 2.629 billion). While sales declined in the industrialized nations, they rose once again in the emerging markets, thus increasing their overall share slightly from 45 percent in the previous year to 46 percent. This was largely due to the stable developments in China, Brazil, and Russia.
At EUR 3 million, the operating result excluding special items remained on a par with the previous year (EUR 4 million) despite non-recurring expenditure. A higher provision for risks made necessary as a result of the Eastman Kodak Company being subject to insolvency proceedings under U.S. insolvency law (“Chapter 11”) had a negative impact on results in the low two-digit million euro range. Special items in the financial year just closed totaled EUR 142 million due primarily to the Focus 2012 efficiency program, which resulted in an operating result after special items of EUR -139 million (previous year: EUR 6 million).
The financial result improved as expected in the year under review by EUR 59 million to EUR -90 million (previous year: EUR -149 million). This was mainly caused by the improvement in the capital structure due to the previous year’s successful capital increase and the significant reduction in tied-up capital as a result of active asset management. Tax of EUR 1 million contributed to an annual loss of EUR -230 million (previous year: EUR -129 million). A proposal will therefore be put to the Annual General Meeting not to pay a dividend for the year under review.
At EUR 10 million, the free cash flow was much better than expected. Successful management of net working capital and a reduction in the volume of receivables from sales financing both played a part in this improvement. Due to the annual loss, our equity ratio dropped from around 33 percent to just under 23 percent. Thanks to systematic asset management, the company's net financial debt was kept to a low level at EUR 243 million (previous year: EUR 247 million).
“Despite weak development in the industry and non-recurring costs, our operating result held stable compared to the previous year. Systematic implementation of the measures in our Focus 2012 efficiency program means we are on track to reach our medium-term profitability targets. As we have reduced our working capital through successful asset management in the year under review, we have been able to cut our financing requirements accordingly,” said Dirk Kaliebe, CFO at Heidelberg. “Our financing structure exhibits appropriate diversification in terms of both financing sources and the maturity profile. In the medium- to long-term, Heidelberg therefore has a stable liquidity framework providing sufficient leeway.”
Results in the Equipment, Services, and Financial Services divisions
In the Heidelberg Equipment division, incoming orders were down 10 percent on the previous year at EUR 1.476 billion due to the restrained investment activity among commercial print shops. The division's sales rose from EUR 1.516 billion in the previous year to EUR 1.523 billion. Despite the non-recurring costs resulting from the higher provision for risks, the operating result excluding special items improved from EUR -98 million to EUR -83 million as a result of systematic cost management and stock optimization measures.
In the Heidelberg Services division, incoming orders dropped by 3 percent to EUR 1.064 billion. Due to negative effects the division's sales fell by 4 percent to EUR 1.058 billion. Sales of remarketed equipment dropped more sharply, while sales of consumables increased as expected. The division's operating result excluding special items was EUR 72 million (previous year: EUR 84 million).
Sales in the Heidelberg Financial Services division held stable compared to the previous year at EUR 15 million (previous year: EUR 16 million). Once again, customers' financing requirements were largely met by external financing partners. The smaller portfolio of direct financing meant interest income was down and resulted in an operating result excluding special items of EUR 14 million (previous year: EUR 18 million).
Focus 2012 – implementation of measures on track
As the change in underlying conditions became apparent, Heidelberg launched its Focus 2012 efficiency program in the year under review and is on track with the implementation of the measures. With the balance of interests and a social compensation plan, the instruments for the necessary personnel adjustment in Germany were agreed upon with the social partners. As a result, around 80 percent of the individual personnel measures could already be realized. First staff members have already left the company on a voluntary and mutually agreed basis. Up to a third of the planned annual savings of around EUR 180 million should be achieved in financial year 2012/2013.
This should ensure that the target operating result excluding special items of around EUR 150 million will be achieved in financial year 2013/2014. Key elements of the program were already initiated before Drupa. For example, the company has cut its capacities by 15 percent to reflect the changed underlying conditions. The working time at German sites has been cut to 31.5 hours a week and the remuneration levels reduced accordingly. In total, the number of employees is to be cut to less than 14,000 by mid-2014 among others by means of socially acceptable measures. As of March 31, 2012, the Heidelberg Group had a workforce of 15,414 worldwide (previous year: 15,828).
Restructuring of Board members’ responsibilities with a focus on growth and efficiency in sales
In addition to reducing costs by adapting capacities and cutting jobs by means of socially acceptable measures, Focus 2012 was also used to set the company’s strategic course. The aim is to ensure standardized and professional support for customers worldwide, and to do so with the greatest possible efficiency. For this purpose, the company’s sales organization will be restructured and adapted to the changed market conditions.
To this end, the sales and service processes in the industrial regions will be harmonized and more strongly centralized, while the presence in emerging markets such as China, India, Russia, and Brazil is to be further expanded. These measures are designed to further strengthen the market position of Heidelberg in growth areas, while maintaining a strong focus on the industrialized nations, which will continue to produce around two-thirds of the print volume in the future. As of June 1, 2012, Marcel Kiessling (51) has assumed overall responsibility for these measures. He is thus responsible for all customer contacts with the sales and service functions as well as the consumables business.
By implementing measures from Focus 2012, introducing organizational changes to strengthen the growth regions, and completely revising its product portfolio with around 60 innovations launched at Drupa, Heidelberg has further expanded its foundation for successful business development as the industry’s clear number one.
Outlook – Drupa trade show gets financial year 2012/2013 off to a positive start
It is anticipated that financial year 2012/2013 will be shaped by the positive impetus generated by Drupa. Due to the success of the trade show, the company expects to generate incoming orders of more than EUR 800 million in the first quarter of the current financial year, which will be the highest value for four years. Overall, Heidelberg expects higher incoming orders in the first half of the financial year, leading to an increase in sales in the second half of the year. The global print volume will increase slightly, thus leading – as seen at Drupa – to replacement investments in industrialized nations and new investments in growth regions.
For the current financial year, Heidelberg expects to achieve a clearly positive operating result before special items, but this will be burdened by the cost of Drupa and product launch costs in the first half of the year in particular. The trade show will also lead to a clear shift in sales into the second half of the financial year, with better profit margins.
Some of the savings from the Focus 2012 efficiency program will begin to take effect in the current financial year. Up to a third of the planned annual savings of EUR 180 million are to be realized in the current financial year. However, the expenditure required for this will have a negative impact on the financial result. Due to the forecast financial result, the pre-tax result is expected to be negative. In financial year 2012/2013, the proportion of payments relating to Focus 2012 will have a significant negative impact on free cash flow, leading temporarily to higher net financial debt. The forecast will be firmed up as soon as there is a clearer picture of the course of developments and post-trade show business.
Heidelberg expects the market recovery to continue in financial year 2013/2014. If, contrary to expectations, the economy fails to improve or the investment rate recovers more slowly than anticipated, this could lead to a slight fall in sales set against the current financial year. The company assumes that, even in this case, the operating result excluding special items will continue to improve, because the cost-cutting measures from the Focus 2012 efficiency program will take full effect. In financial year 2013/2014, the company is therefore striving to achieve an operating result excluding special items of around EUR 150 million and a net profit.
“Through our new products, improved cost base, new organization, and stable financing, we have created a solid foundation for a successful future,” said Bernhard Schreier. “Drupa provided us with the perfect platform to demonstrate our leading market position. Now it is imperative to take advantage of the improved mood in the industry and of the opportunities in the market as well as to continue with the systematic implementation of the cost-cutting measures and thus returning to profitability in 2014.”
Work underway to tackle long-term targets: Profitability and growth in a changed competitive environment
With innovation and integration expertise that is second to none in the industry, the Heidelberg management team has already started work on long-term topics that will affect the sector in the future. The main focus here is on “The future of printing – on paper and other surfaces”.
Heidelberg intends to remain the undisputed number one for professional print service providers. Achieving this aim in future will increasingly require innovative products for packaging, advertising, and business material in short runs, technically attractive special applications, productivity and efficiency in standard print products, greater integration with the Internet, and networking of all print production processes. At Drupa, Heidelberg was the only manufacturer to offer successful solutions for all these challenges.
Now it is essential to build on this solutions portfolio – not only with more efficient machines for offset, flexographic or digital processes or a combination of these, but also by offering additional services across the unique global sales and service network that comprises over 4,000 employees in 170 countries.
What’s more, expertise in development, production, and provision of services for complex production systems and equipment must consequently be used to tap into new areas of business, such as “functional printing”. Substantial potential exists for printing a whole range of surfaces. "Printed light", "intelligent packaging", "interactive print products", and "3D printing" are just a few examples. In this future market, Heidelberg is working closely with other technology companies.
The 2011/2012 Annual Report can be accessed at 7.00 a.m. on June 14, 2012 at www.heidelberg.com.
Publication of the figures for the first quarter of financial year 2012/2013 is scheduled for August 8, 2012.
atz / 06/14/2012