The next step in the strategic process is for Heidelberg to turn a profit again in the current financial year 2013/2014 and to record a positive net result after a series of losses since the crisis year 2008. The medium-term goal is to further reduce the company’s debt level to no more than twice the operating result before depreciation and amortization. This will give Heidelberg the greater flexibility needed for assessing and optimizing its portfolio based on its future profitability. To achieve this, Heidelberg addressed the operating segments and made a start on revising and adapting the Group’s business areas (BAs) in the year under review.  

“In the financial year just closed, we introduced the necessary steps to return to profitability in financial year 2013/2014,” said Heidelberg CEO Gerold Linzbach (photo). “Heidelberg now has a more flexible setup with clearly assigned responsibilities. We are focusing our full attention on our profitability by adapting to the market situation. We will make strategic adjustments to the portfolio and increasingly focus on business areas that offer the potential to achieve long-term profitability,” he added.  

Financial year 2012/2013: Forecast met – clearly positive operating result excluding special items

Group sales after 12 months were around 5 percent up on the previous year’s figure (Eur 2.596 billion) at Eur 2.735 billion. Sales of new equipment did not quite meet expectations, because Drupa did not result in a lasting revitalization of the market as had been hoped. Growth was also less dynamic in certain countries such as Brazil. The services and consumables areas progressed entirely according to plan. Sales in China exceeded the previous year’s value and accounted for around 16 percent of total sales, making it the company’s largest single market.

Despite a number of negative effects, the growth in volume combined with the savings made by the Focus 2012 efficiency program led to a Eur 21 million improvement in EBITDA to Eur 111 million (previous year: Eur 90 million). The result of operating activities (EBIT) excluding special items climbed to Eur 28 million (previous year: Eur 3 million).

The costs of Focus 2012 accounted for a large part of special items totaling Eur -65 million in the financial year just closed (previous year: Eur -142 million). To further improve the ability of Heidelberg to respond to short-term fluctuations in sales, and to further lower its cost base and make this more flexible, the Management Board decided in the fourth quarter to step up a number of measures in the Focus 2012 program. The majority of these measures will be geared toward cutting staff costs by reducing the headcount to significantly below 14,000. The additional measures will increase the annual savings achieved by Focus 2012 to more than Eur 200 million from the end of the current financial year.

“Systematic implementation of the Focus 2012 efficiency program played a key role in achieving our forecast result in the financial year just closed,” said Heidelberg CFO Dirk Kaliebe. “Thanks to our comprehensive asset management, we have succeeded in keeping our debt at a low level overall. What’s more, Heidelberg benefits from a sound financial footing,” he added.

The financial result improved slightly from the previous year’s figure of Eur -90 million to Eur -82 million. Due to special items and the negative financial result, the pre-tax result was, as expected, negative at Eur -118 million (previous year: Eur -229 million). Heidelberg recorded a net loss of Eur -110 million for the year under review, but this was less than half the previous year’s net loss of Eur -230 million. Incoming orders in the reporting period increased to Eur 2.822 billion (previous year: Eur 2.555 billion), while the order backlog as at March 31, 2013 matched the previous year’s level at Eur 502 million.

Net financial debt remains stable year-on-year at Eur 261 million

There were two reasons for the reduction in equity to around Eur 400. Firstly, one-time payments for Focus 2012 and the negative financial result led to a net loss for the year. Secondly, there was a change to the interest parameters relating to pensions. The equity ratio, which relates to the balance-sheet total, fell to 17 percent. In the medium term, the company is looking to significantly increase this ratio again by returning to long-term profitability.

Thanks to comprehensive asset management and the continuation of the net working capital program, Heidelberg once again lowered its working capital. In the financial year just closed, the free cash flow – excluding payments of Eur 62 million relating to Focus 2012 – was clearly positive at around Eur 44 million. Including these one-time payments, it was only slightly negative at Eur -18 million (previous year: Eur +10 million). As a result, the net financial debt at the end of the financial year remained at more or less the same level as in the previous year at Eur 261 million (previous year: Eur 243 million).

Business results in the segments

In the year under review, the Heidelberg Equipment segment generated around 60 percent of Group sales with a figure of Eur 1.712 billion (previous year: Eur 1.610 billion). The structural changes in the printing industry are being reflected in the format classes that are in demand. Orders for large-format sheetfed offset presses rose overall, while orders for small-format presses were lower than in previous years. The operating result excluding special items improved to Eur -45 million (previous year: Eur -71 million).

In the financial year just closed, sales and incoming orders in the Heidelberg Services segment each climbed by 4 percent to Eur 1.012 billion and Eur 1.021 billion respectively. As planned, the consumables business made a major contribution to the increase in sales. The higher level of sales and the savings made helped improve the operating result excluding special items by 8 percent over the previous year to Eur 65 million.

As planned, sales in the Heidelberg Financial Services segment were lower than the previous year’s figure of Eur 15 million at Eur 11 million. Once again, customers’ financing requirements were largely met by external financing partners. The smaller portfolio of direct financing thus led to lower interest income and to an operating result excluding special items of Eur 9 million (previous year: Eur 14 million).

Focus 2012 proceeding as planned

The measures decided on as part of Focus 2012 continued in the year under review. By March 31, 2013, the headcount had fallen by around 1,200 to 14,215 (previous year: 15,414). Stepping up a number of program measures will result in a further reduction in the global Group headcount to significantly below 14,000.

Outlook – net profit on target for financial year 2013/2014

Overall, Heidelberg sees the general conditions for the printing industry as stable in the current financial year: The market in which the company operates is robust, and the global print production volume will remain constant or increase slightly. Heidelberg therefore anticipates that global demand for printing presses and consumables will develop accordingly. In light of this, the company is assuming that sales will match the level of the year under review in the 2013/2014 financial year. As in the previous year, Heidelberg forecasts that the share of sales will again be significantly higher in the second half of the year.

The forecast sales breakdown between the first and second halves of the year will also influence the result of operating activities over the year. In the first quarter, Heidelberg is still expecting a clearly negative result, though this should be above the figure for the previous year. Results will improve further in the subsequent quarters. The intended savings under the Focus 2012 program of € 180 million will develop their full effect for the first time over the course of the 2013/2014 financial year. Overall, the company is planning to improve the result of operating activities excluding special items significantly against the year under review.

Heidelberg already recognized the majority of the costs for expanding the Focus 2012 program in the past financial year. Nevertheless, the company expects that extraordinary expenses could be incurred again in the current financial year while implementing activities. The financial result benefited from the non-recurring special item of the recognition of  interest on tax reimbursements in the reporting year. In the coming year Heidelberg predicts a further slight improvement in the financial result. With the help of the measures that have been initiated, Heidelberg is aiming to generate a net profit in the 2013/2014 financial year:

Heidelberg is assuming stable to slightly rising sales in the years after the 2014/2015 financial year. In addition to initiatives to raise margins and optimize the portfolio, the company will also continue to reduce the cost base in future in order to achieve a medium term margin target of above 8 percent EBITDA on sales.

Heidelberg will also continue its measures to lower net working capital and asset management. On balance, the company will keep the investment rate at around 2 percent of sales in the current financial year. The planned earnings improvements, together with the measures to reduce, and more efficiently use, the capital commitment should strengthen the capital structure and return the net debt to a level not more than twice EBITDA in the medium term (leverage). This way, the company intends to further increase profitability by means of the return on capital employed (ROCE) so that after deduction of capital costs Heidelberg will generate positive economic value added.

The 2012/2013 annual report can be accessed at www.heidelberg.com. The Heidelberg Annual General Meeting will take place on July 23, 2013. The figures for the first quarter of financial year 2013/2014 are due to be published on August 13, 2013.