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Heidelberg committed to growth – company assumes new strategic alignment

Wednesday, June 10, 2015

Press release from the issuing company

  • Investment in services, consumables, and digital printing will lead to future growth
  • Operating margin (EBITDA margin excluding special effects) slightly higher despite comprehensive portfolio optimization
  • Low leverage (<2) and long-term financing framework lay the foundations for further strategic reorientation
  • Outlook for 2015/2016: Sales increase of 2 to 4 percent forecast, with target EBITDA margin of at least 8 percent 

Heidelberger Druckmaschinen AG (Heidelberg) largely completed the Group’s strategic reorientation in financial year 2014/2015 (April 1, 2014 to March 31, 2015). The focus during this process was on realigning the Group’s portfolio toward profitable areas of business and growth sectors. The corporate structures have also been adapted to dynamic changes in markets. This has had a further significant impact on sales and results and has provided the basis for profitable growth.  

“We’ve made Heidelberg fit for the future,” said Gerold Linzbach, CEO of the company. “The reorientation will enable Heidelberg to enjoy sustained profitable growth in the future.”

Future growth will be generated primarily in the services and digital sectors. Heidelberg continued to strengthen the services sector in the past financial year through acquisitions (BluePrint Products, Printing Systems Group, Fujifilm Sverige). The newly acquired companies are set to generate sales of over € 100 million from the current financial year 2015/2016 onward and will help ensure sustainably profitable growth for Heidelberg following complete integration. The Heidelberg Group’s position in the growth segment of digital printing was further strengthened with the complete takeover of Neo7even and the Gallus Group and the launch of a digital label printing machine.

Another aim is to further improve the company’s profitability. The reorientation of unprofitable activities such as those in postpress, which was completed in financial year 2014/2015, will improve the result by approximately € 30 million in the future. The structures for offset printing have also been adapted to the market environment, thus enabling Heidelberg to respond more flexibly to market fluctuations and achieve cost savings in the low double-digit million euro range.

“From the current financial year onward, we expect to consistently achieve clearly positive net results,” added Linzbach.  

2014/2015: Operating margin (EBITDA margin excluding specialeffects) slightly higher despite portfolio optimization

Sales in the 2014/2015 financial year were € 2.33 billion (previous year: € 2.43 billion), in line with expectations as adjusted at the half-year point. This decline of around 4 percent was due to portfolio optimization, the associated sales of parts of the company, and the effects of the general slowdown in growth in China. 

Despite the lower volume of sales, Heidelberg reached its target of achieving higher operating profitability than in the previous year. The operating margin was slightly up on the previous year on a comparable basis due to cost savings. Net special effects of around € 50 million, largely from reorganizing the company pension scheme in Germany, led to an improvement in EBITDA excluding special items to € 188 million in the year under review (previous year: € 143 million). At € 119 million, EBIT excluding special items was thus also well above the figure for the previous year (€ 72 million). There were special items of € -99 million for portfolio and restructuring measures in the period under review. 

Due to non-recurring expenses of around € 25 million resulting from financing activities, the financial result was € -96 million. Pressure on the financial result will ease significantly in the future due to lower interest payments for the new financing instruments. The net result after taxes was negative at € -72 million (previous year: € 4 million).

Equity was € 183 million at March 31, 2015 (previous year: € 359 million). A key reason for this decline was the rise in pension provisions due to the significant lowering of the discount rate for pensions in Germany from 3.50 percent in the previous year to 1.70 percent on the balance sheet date. In the year under review, the decline in equity was partially compensated by the reorganization of the company pension scheme in Germany, which was changed from a previously defined benefit plan to a defined contribution plan. The medium-term goal is to increase the equity ratio again by returning to sustained profitability.

Low leverage (<2) and long-term financing framework lay the foundation for further strategic reorientation 

Free cash flow was € -17 million in the year under review (previous year: € 22 million). This included one-time payments for the Focus efficiency program of around € 45 million. Active asset and net working capital management led to stable net debt at a low level of € 256 million (previous year: € 238 million). Leverage was further reduced due to the accompanying improvement in operating profitability. The ratio of net debt to EBITDA was below the target level of 2, if the non-recurring positive effects are included, the figure was 1.4 (previous year: 1.7). 

“Heidelberg has a stable financial footing. With three pillars, the financing structure is now well balanced and basic funding is assured until 2022,” said Dirk Kaliebe, CFO at Heidelberg. “This long-term financing framework provides a solid foundation for a further strategic realignment of the company.”

During the year under review, the financing structure was optimized further. The financing portfolio consists of three pillars comprising corporate bonds, a syndicated credit line, and other instruments such as convertible bonds. The net debt of € 256 million is covered by basic funding until 2022. Heidelberg currently has total credit facilities of around € 750 million.

Outlook for 2015/2016: Sales increase of 2 to 4 percent forecast, with target EBITDA margin of at least 8 percent

For the current 2015/2016 financial year and in the medium term, Heidelberg is striving for annual sales growth of 2 to 4 percent. As in the previous year, the share of sales is expected to be higher in the second half of the financial year than in the first half.

Assuming that the initiatives to increase margins and optimize the portfolio take effect in the current financial year, the company is anticipating an operating margin on EBITDA of at least 8 percent of sales in the 2015/2016 financial year. The Heidelberg Equipment segment is expected to contribute within a range of 4 – 6 percent to this result and the Heidelberg Services segment 9 – 11 percent. In the Heidelberg Financial Services segment, the company will continue to primarily externalize customer financing. The segment should continue to provide a positive EBITDA contribution. 

The planned earnings improvements together with the measures aimed at the reduction and efficient utilization of the company’s capital commitment are intended to strengthen the capital structure and keep the net debt at a low level that sustainably does not exceed twice the result of operating activities before interest, taxes, depreciation and amortization excluding special items (EBITDA) (leverage). 

As at March 31, 2015, the Heidelberg Group had a global workforce of 11,951 plus 427 trainees (previous year: 12,539 plus 502 trainees).

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