Heidelberg reports loss on the quarter, new orders stabilizing
Wednesday, November 11, 2009
Incoming orders in the first six months of the financial year 2009/10 (April 1 to September 30) at Heidelberger Druckmaschinen AG (Heidelberg) have stabilized at the current low level. In total, however, the figures for the first six months are down significantly on equivalent figures for the previous year. As print shops are still running well below capacity due to low advertising budgets, the company does not expect any marked increase in investments in the print media industry for the financial year as a whole.
Incoming orders of EUR 534 million in the second quarter (July 1 to September 30) were roughly on a par with the previous quarter (EUR 550 million), having stabilized at a low level since October 2008. The significant fall in incoming orders to EUR 1.084 billion in the first half of the year was also influenced by the high order volumes stemming from last year's drupa show (previous year: EUR 1.872 billion).
"Developments within the individual regions differ considerably. Asia is showing signs of recovery, which are not sufficient to fully compensate for the downturns in the other regions," says Heidelberg CEO Bernhard Schreier. "Incoming orders are bottoming out now, but we do not expect to see clear signs of improvement in the subsequent quarters of the current financial year. We can only expect to see an improvement in production values and capacity utilization in the print industry when the economy as a whole shows signs of a lasting recovery, which in turn will encourage a greater readiness to invest."
The order backlog of the Heidelberg Group remained constant in the second quarter of the current financial year at EUR 617 million (previous quarter: EUR 616 million).
The low level of incoming orders led to a slight drop in sales in the second quarter over the first quarter, falling from EUR 514 million to EUR 499 million. In the first six months of the current financial year, sales amounted to a total of EUR 1.013 billion and were thus down around 31 percent on the previous year (EUR 1.461 billion).
The operating result excluding special items amounted to EUR minus 65 million in the second quarter (previous year excluding special items: EUR minus 10 million). As a result of low profit contributions due to weak sales, the cumulative figure for the operating result after two quarters was EUR minus 128 million (previous year: EUR minus 45 million). Further expenditure for special items amounting to EUR 11 million has been incurred up to September 30, 2009 (expenditure for special items in the previous year: EUR 40 million). The net result for the first six months was EUR minus 147 million (previous year: EUR minus 95 million).
As a result of a further reduction in the working capital, a positive free cash flow of EUR 11 million was recorded in the second quarter. In the first six months as a whole, free cash flow was only slightly negative at EUR minus 18 million, up significantly on the previous year's level of EUR minus 273 million.
"All our measures aimed at cutting costs by around EUR 400 million a year are currently in the process of being implemented. This is going some way to compensating the burden on results brought about by falling sales," explains Heidelberg CFO Dirk Kaliebe.
"The cost savings achieved so far and the positive effects in asset management have enabled us to achieve a positive free cash flow in the second quarter and reduce the net debt over the previous quarter."
As a result of the slight increase in volumes in comparison with the previous quarter and higher cost savings anticipated over the further course of financial year 2009/10, the company expects to keep the operating result fairly level in the second six months of the year.
With the conclusion of negotiations on a reconciliation of interests and a redundancy plan at the start of October, the planned cutbacks at Heidelberg are progressing. On September 30, 2009, Heidelberg had a workforce of 18,201 worldwide, representing a reduction of around 2,400 employees since the end of March 2008. In total, the company plans to cut around 4,000 jobs worldwide by the end of financial year 2010/11.
The weak economic conditions worldwide have impacted on the company's business in all sectors. Sales and incoming orders in this area were therefore down on last year. However, incoming orders for the new large-format presses exceeded expectations. Looking at the individual regions, Asia/Pacific was the only region to improve in terms of incoming orders. At EUR 172 million, orders for the second quarter were up on the previous year's figure (EUR 147 million). By contrast, incoming orders in all other regions fell compared to the previous year.
As a result of the business developments in the first six months of the year and the current economic and market forecasts, Heidelberg does not expect the level of investment in the print media industry to rise in the current financial year. For the subsequent quarters in financial year 2009/10, the company expects no significant increase in incoming orders and sales over the previous quarters, which means that the figures will likely fall short of the original expectations. Consequently, for the financial year as a whole, Heidelberg sales will fall well short of the figure for financial year 2008/09. As a result of the low sales volume, Heidelberg forecasts an operating result (excluding special items) of between EUR minus 110 million and EUR minus 150 million. All the cost-cutting measures planned at Heidelberg are currently in progress. Moreover, the agreements made to date mean that personnel costs can still be adapted flexibly as needs dictate.