Heidelberg Sales drop 19%
Wednesday, June 10, 2009
Press release from the issuing companyAs a result of the global financial and economic crisis and the sharp decline in order levels in the mechanical engineering sector, Heidelberger Druckmaschinen AG (Heidelberg) has recorded a sharp drop in sales and results for financial year 2008/2009.
“The 2008/2009 financial year was one of the most difficult in the company’s history. The positive start to the year with the drupa 2008 trade show was burdened in the following months with the global recession and the collapse in demand worldwide. Nonetheless, we succeeded in easing the effects of the crisis by implementing a raft of cost-cutting measures at an early stage and managed to create a basis for the future by making some – at times painful – cutbacks,” says Bernhard Schreier, Heidelberg CEO.
After the first quarter, the global economic crisis really weighed on the incoming orders for 2008/2009. These fell to EUR 2.906 billion for the year as a whole, some 20 percent down on the figure for the previous year (EUR 3.649 billion). Due to the worsening economic situation and the restrictive lending policy applied to print shops, demand fell sharply in the second half of the year in particular. This applies to all the markets around the globe on which Heidelberg operates.
In financial year 2008/2009, Heidelberg sales accordingly fell by 18 percent to EUR 2.999 billion (previous year: EUR 3.670 billion). Excluding restructuring costs, the operating result based on EBIT fell to EUR -49 million. Including restructuring costs, EBIT was EUR -228 million (previous year: EUR 268 million). The worsening of the financial result to EUR -119 million (previous year: EUR -69 million) can be attributed largely to a substantial rise in the refinancing requirements of Heidelberg in the past financial year. At EUR -249 million, the annual net loss was substantially down on the annual net profit for the previous year (EUR 142 million).
The free cash flow of the Heidelberg Group came to EUR -201 million for the year as a whole (previous year: EUR 215 million). A high cash outflow was recorded for the first half of the year in particular. However, the cash flow was positive again in the second half of the year as a result of the cost-cutting measures implemented.
Results in the Press, Postpress and Financial Services divisions
In the Press Division (offset printing), sales in the past financial year fell by approx. 18 percent to EUR 2.621 billion. Incoming orders were down 20 percent on the previous year at EUR 2.546 billion. The operating result for 2008/2009, including special items, amounted to EUR -193 million (previous year: EUR 239 million). In the Postpress Division (finishing), sales in the reporting year fell by around 17 percent to EUR 353 million. Incoming orders were down by around 20 percent to EUR 335 million. The operating result in this division for the period under review, including special items, was EUR -51 million (previous year: EUR -7 million). In the Financial Services Division, sales dropped by approx. 17 percent to EUR 25 million. The operating result for 2008/2009, including special items, amounted to EUR 16 million (previous year: EUR 36 million).
No dividend payment planned
In view of the sharp fall in sales and results in the period under review, the Supervisory Board and Management Board will propose to the Annual General Meeting that no dividend be distributed for the 2008/2009 financial year.
Cost-cutting measures having a positive impact
In response to the global economic crisis, Heidelberg implemented an initial package of cost-cutting measures last summer. By expanding this package in the fourth quarter of the last financial year, the company is aiming to achieve annual savings of around EUR 400 million up to financial year 2010/2011. The measures include plans to reduce personnel capacities by up to 5,000 jobs. Discussions with employee representatives and the labor union on the need to lower personnel costs were started in the first quarter of the current financial year.
Overall, implementation of the cost-cutting measures is running to schedule. Savings of around EUR 84 million were made in financial year 2008/2009. With the entry of EUR 179 million, the costs for the complete package have been almost entirely accounted for in the past financial year.
Since the start of financial year 2008/2009, the company has reduced its staffing levels by around 1,700, including temporary workers. On March 31, 2009, the Heidelberg Group had a workforce of 18,926, including staff incorporated from new consolidations.
“We responded quickly to the difficult economic situation by introducing tough cost-cutting measures and are doing everything we can to make Heidelberg even less dependent on economic developments. As a result, Heidelberg is well placed to return to profitable growth and win further market share when the economic climate brightens,” explains Schreier.
Fundamental credit approvals secure financing
Heidelberg had entered into intensive talks with the financing banks based on a detailed financing concept, the type, scope and term of which essentially correspond to the previous financing structure. “Despite the difficult underlying conditions, Heidelberg has succeeded in renegotiating its current financing structure and securing the Group’s liquidity through fundamental credit approvals from the banks,” states the company’s CFO, Dirk Kaliebe. A prerequisite for implementing the financing concept is the granting of securities in line with the second package of measures, i.e., the “Pact for Employment and Stability in Germany” (the so-called Economic Stimulus Package II) and for the credit extended by the KfW (Reconstruction Loan Corporation), for which final approval is yet to be given. The relevant federal bodies have already indicated their agreement in principle, and the company is expecting a decision from Baden-Würtemberg’s Economic Committee shortly. “With this support, we will be able to bridge the period of the financial market crisis. In view of the expected credit approvals by our banks, we continue to have a solid financial framework in place,” resumes Schreier, adding: “This will secure the future, the innovative strength and technology leadership of Germany as a force in the printing press industry.”
Prospects for the future: Financial year 2009/2010 will remain difficult
Heidelberg does not expect the economic situation to improve significantly in financial year 2009/2010. The company does not anticipate print shop investments in some industrial countries to pick up in the months ahead. Incoming orders are also predicted to remain at the low level recorded for the last two quarters. In view of this assessment and the low order backlog, Heidelberg forecasts a further drop in sales for the current financial year. The further decline in sales in the current year will once again lead to low profit contributions and thus weigh on the operating result. This is being counteracted by the package of measures the company was quick to introduce. The sharp rise in refinancing costs, which also include the cost of the guarantees under the Economic Stimulus Package II, will cause Heidelberg to post high costs that will also weigh on the financial result for the current financial year. As a result of these costs in particular, the company predicts another negative result for the 2009/2010 financial year.
As a result of the substantial drop in the order backlog, which amounted to approx. EUR 650 million at the end of financial year 2008/2009, Heidelberg expects a considerable fall in sales for the first quarter of the current financial year 2009/2010, both against the last two quarters of the reporting year and the same quarter of the previous year. This development can presumably only be partly compensated by the ongoing cost-cutting measures, so that the company expects a clearly negative operating result in the first quarter of 2009/2010.
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