Heidelberg Initiates Next Stage of Group’s Reorganization

Following five years of losses, Heidelberger Druckmaschinen AG has achieved its key goal of making an annual profit. The net profit for financial year 2013/2014 (April 1, 2013 to March 31, 2014) was €4 million (previous year: €-117 million). The next step is to secure the Group’s sustained profitability in the years ahead by expanding growth segments, implementing portfolio measures and introducing structural cost projects. The aim is to achieve an EBITDA margin of no less than 8% by financial year 2015/2016.

“In returning to profitability, we have reached a first important milestone,” said Heidelberg CEO Gerold Linzbach. “We are now starting the next stage of the Group’s reorganization so as to achieve a sustained increase in corporate value. This involves making acquisitions in growth segments, scaling down areas of business with weak margins, and cutting structural costs in order to further improve profitability.”

Heidelberg is further developing its digital portfolio with the planned complete takeover of the Gallus Holding AG. In fall this year, Heidelberg and Gallus will be unveiling a new digital printing system for the label market based on Fujifilm technology. Ferdinand Rüesch will also become a new strategic anchor investor of the company by acquiring approximately 9% of Heidelberg shares in return for the Gallus stake. At the same time, Heidelberg is strengthening its capital structure, which will support the company’s strategic reorientation.

“Our aim in acquiring Gallus is to achieve fast and profitable growth in the digital label sector. What’s more, a strategic investor with experience in this sector will ensure the stability of both the shareholder and capital structures,” said Linzbach.

Heidelberg sees particularly good opportunities for growth in the expansion of its activities involving services and consumables, which benefit from strong margins. Following the successful takeover of a coating manufacturer, discussions on a further acquisition are currently under way.

As part of the collaboration with Fujfilm, an OEM agreement to supply platesetters (CtP) has also been concluded. Fujifilm will market Heidelberg platesetters under its own name in future, while Heidelberg has taken over some European sales activities for Fujifilm printing plates.
As regards services, the marketing of new service products has gotten off to a successful start. The portfolio now also includes consulting, which extends beyond simply providing technical services and is intended to achieve a concrete, measurable improvement in customer results.

The portfolio analysis conducted last year showed that the only way to achieve economic success in some product areas is to switch to new business models. Over the next six months, the company is therefore planning to take decisions on discontinuing some operations or radically altering the vertical range of manufacture, in some cases with the involvement of partners.

Ongoing projects to boost efficiency have already led to a streamlining of structures at the Group’s key sites in Heidelberg and Wiesloch/Walldorf. By the end of financial year 2014/2015, there are plans to integrate the administrative headquarters into the Wiesloch/Walldorf production site. This will involve the relocation of the Management Board and some 500 employees. This step will further improve the harnessing of synergies between the two sites and lead to annual savings in operating costs in the low single-digit million euro range. It will also create the world’s largest demonstration print shop for both packaging and commercial printing, where customers will get a live insight into the interplay of printing technology, future-focused service concepts and consumables.

“The Heidelberg corporate culture is entering a new era. The key focus when taking decisions will be on both our customers’ results and our own. We are bringing key functions and operational areas into closer proximity and are gearing our activities more toward the market and our customers. This will make Heidelberg leaner and more profitable. The measures we are planning in the current financial year will lay the foundation for achieving an EBITDA margin of no less than 8% by financial year 2015/2016,” concluded Linzbach.

Although factors such as exchange rate movements resulted in a decline in Group sales from the previous year’s figure of €2.735 billion to €2.434 billion (€2.536 billion after adjustment for exchange rate movements) in reporting year 2013/2014, all result-related KPIs were far better than in the previous financial year. For example, EBITDA excluding special items rose to €143 million in the financial year just closed (previous year: €80 million). This led to an improvement in the EBITDA margin from about 3% to approximately 6%. Within 12 months, the result of operating activities (EBIT) excluding special items climbed from €-3 million in the previous year to €72 million. Special items in the reporting period amounted to €-10 million (previous year: €-65 million) and the financial result was €-60 million (previous year: €-59 million). This led to a net profit for the year of € 4 million (previous year: €-117 million).

“Not only have we achieved all our results targets, but our asset and net working capital management program has also brought further successes in terms of cash flow and free cash flow and thus reducing our net debt,” said Heidelberg CFO Dirk Kaliebe. “At the end of the financial year, we thus achieved our goal of reducing the leverage (net financial debt divided by EBITDA) to less than two for the first time in many years,” he added.

Heidelberg is expecting to match the sales achieved in the reporting year in the current financial year 2014/2015. As in the previous year, sales are once again expected to be higher in the second half of the financial year than in the first.

Having succeeded, as forecast, in achieving a positive annual result in reporting year 2013/2014, the declared goal for financial year 2014/2015 is to further improve the company’s profitability in order to get closer to the medium-term objective of an operating margin of no less than 8% in terms of EBITDA and improve the result after taxes in spite of the higher level of interest expense for financial liabilities. As of March 31, 2014, the Heidelberg Group had a global workforce of 12,539 plus 502 trainees (previous year: 13,694 plus 521 trainees).