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Heidelberg in the Red, Increases Cut Backs

Friday, November 07, 2008

Press release from the issuing company

(November 06, 2008) In the first six months of financial year 2008/2009 (April 1, 2008 to September 30, 2008), Heidelberger Druckmaschinen AG (Heidelberg) matched the previous year's incoming orders thanks to the industry trade show drupa in May 2008. Looking at the second quarter (July to September 2008) in isolation, incoming orders fell sharply by around 23 percent due to the continuing financial crisis and the resultant global economic uncertainties. Incoming orders for the Heidelberg Group in the period under review totaled 1.872 billion Euro (previous year: 1.866 billion Euro), 721 million Euro of this in the second quarter (previous year: 932 million Euro). Sales by the Heidelberg Group in the first two quarters amounted to 1.461 billion Euro (previous year: 1.639 billion Euro). In the second quarter, Heidelberg achieved sales of 804 million Euro (previous year: 897 million Euro). This figure was lower than expected. The order backlog at the end of the second quarter was 1.206 billion Euro (previous quarter to June 30, 2008: 1.298 billion Euro).

The operating result of the Heidelberg Group in the second quarter of financial year 2008/2009 was well into negative figures at -50 million Euro (previous year: 70 million Euro). This result includes special items totaling 40 million Euro, among them a EUR 22 million provision from the collective labor agreement for partial retirement and the outlay for the package of cost-cutting measures. After adjustments for special items, the operating result for the second quarter was -10 million Euro. Falling sales and the resultant low profit contributions, the start of series production for new products, higher raw material prices, and the remaining costs for drupa all burdened results during the second quarter. The cumulative operating result after two quarters was -85 million Euro (previous year: 96 million Euro) and the net result in the first six months was -95 million Euro (previous year: 44 million Euro).

"We are working harder and faster to adapt our structures and costs to the gloomy economic forecasts and the industry's reluctance to invest," stated Heidelberg CEO Bernhard Schreier. "We are sticking with our strategic approach and our comprehensive range of products and services. Despite our reduced budget, we will maintain our leading market position. We need to use the measures initiated to stabilize the earnings situation until there is an improvement in the overall economic climate," he continued.

After the first six months of the financial year, the free cash flow stood at -273 million Euro (previous year: -43 million Euro). The figure for the second quarter on its own was -62 million Euro.

At September 30, 2008, the Heidelberg Group had a workforce of 19,865 (19,596 at March 31, 2008). Adjusted to take into account the number of trainees and the employees of Heidelberg Graphic Equipment Ltd. in Shanghai and Hi-Tech Coatings, which were newly consolidated in the year under review, the total workforce fell by 129 in the first six months.

Results in the Press and Postpress divisions
In the Press Division (offset printing), sales stood at 1.268 billion Euro in the first six months (previous year: 1.424 billion Euro). Incoming orders in the period under review amounted to 1.654 billion Euro (previous year: 1.632 billion Euro). The operating result in the first six months totaled -78 million Euro (previous year: 81 million Euro). 

In the Postpress Division (finishing), half-yearly sales fell to 180 million Euro (previous year: 199 million Euro). Incoming orders amounted to 205 million Euro (previous year: 218 million Euro). Above all due to falling sales, the operating result for the period under review was down on the previous year at -18 million Euro (previous year: -4 million Euro).

As expected following the high level of orders generated at drupa, incoming orders fell in the second quarter in the EMEA, North America and Asia/Pacific regions. Orders remained stable in the Eastern Europe region and increased in the Latin America region. Thanks mainly to orders from the Brazilian market, this region was 26 percent up on the same quarter of the previous year. There was also a significant improvement of 18 percent in the half-yearly figure. Sales in all regions for the first six months were down on the previous year's level.

Difficult business situation expected - cost-cutting program stepped up
Heidelberg expects a significant downturn in sales and thus a marked reduction in operating result (EBIT) for the current financial year (April 1, 2008 to March 31, 2009) compared to last year. The financial result is also expected to be down due to the current financial crisis and the movements in interest rates. These developments coupled with the restructuring costs will lead to a significant annual deficit in the current financial year. 

Because of the unpredictable nature of the current financial crisis and its impact on customers' investment decisions, Heidelberg will not, contrary to earlier announcements, provide a quantitative forecast for the current financial year. Financial year 2009/2010 is even more difficult to forecast and the Management Board does not currently expect any change for the better given the current developments.

In the light of the significant fall in sales and earnings, Heidelberg is extending its existing package of cost-cutting measures to around 200 million Euro and accelerating its implementation.  Instead of the total cuts of 75 million Euro announced so far, the total package will now yield savings of 150 million Euro to 180 million Euro as early as financial year 2009/2010. Further measures in financial year 2010/2011 will boost total savings to around 200 million Euro.

Given this additional need for restructuring, the overall costs for the extended package of measures will rise to 130 million Euro to 150 million Euro. The restructuring measures already include provisions from the collective labor agreement for partial retirement recently signed for the metal industry. Most of the restructuring costs are expected to arise in financial year 2008/2009.




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