Solid Second Quarter Improves Heidelberg's Half-Year Balance Sheet – Economic Uncertainties Remain
Wednesday, November 06, 2019
Press release from the issuing company
Solid Second Quarter Improves Half-Year Balance Sheet – Economic Uncertainties Remain
In the second quarter (July 1 through September 30, 2019), Heidelberger Druckmaschinen AG (Heidelberg) succeeded in almost compensating for the relatively weak start to the year. As a result, sales for the quarter (up 9 percent to € 622 million), EBITDA (excluding restructuring result) (up 28 percent to € 55 million), and incoming orders (up 1 percent to € 648 million) all improved. The main boost to business came from the ongoing digitization of processes (Push-to-Stop technology) in the core business of sheetfed offset printing, which is currently generating higher sales in the United States and China in particular. Digital business models such as subscription are also making a positive contribution, as is the growing proportion of recurring sales from contract business and e-commerce. Subscription business now accounts for over 10 percent of the order backlog, for instance. The medium-term goal at Heidelberg is to significantly reduce the company’s exposure to economic fluctuations by generating around a third of total sales from recurring business.
Heidelberg responds to continuing economic uncertainties
“Recent months have shown that our basic strategy is right – the proportion of contract business is growing, an increasing number of customers is making use of our digital solutions in sheetfed offset, and we’re using targeted investments in our core business to safeguard our global market and technology leadership,” said Heidelberg CEO Rainer Hundsdörfer. “The solid progress in the second quarter means we’re confident of achieving the planned sales target for the financial year. The difficult economic climate worldwide is affecting both us and our customers, though, so we’ll be taking a highly systematic approach to implementing the measures initiated to improve our net result and free cash flow in the coming months,” he added.
Cost-efficiency strategies and further streamlining both organizational and management structures at the company are key to securing sustainable results. This includes downsizing the Management Board. Board member Stephan Plenz, Chief Technology Officer and in charge of the Heidelberg Digital Technology segment, will be leaving the company by mutual agreement when his current contract ends in June 2020.
The company is using three main approaches to address the working capital and free cash flow situation, which remains unsatisfactory despite improvements in the second quarter. Firstly, planned investments are being cut by some € 20 million. Secondly, a reduction of around € 50 million in tied-up capital is to be achieved by optimizing throughput times and inventory levels while also improving accounts receivable management. In addition, portfolio adjustments and further structural optimizations are expected to generate around €30 million in cash for the company. Overall, the liquidity potential thus totals some € 100 million.
Improved operational development in second quarter – economic uncertainties remain
EBITDA excluding restructuring result in the quarter under review amounted to around € 55 million (including an IFRS 16 impact of € 4 million). This, too, was significantly up on the unadjusted figure for the previous year of around € 43 million (€ 69 million for 1H 2019/2020 compared to € 62 million for 1H 2018/2019). EBIT excluding restructuring result totaled € 32 million for the quarter (same quarter of previous year: € 26 million) and € 22 million for the first six months (previous year: € 27 million). The EBITDA margin excluding restructuring result (but including the impact of IFRS 16) was 8.9 percent, following a figure of 7.4 percent for the corresponding quarter of the previous year (6.2 percent for 1H 2019/2020 compared to 5.5 percent for 1H 2018/2019). The financial result improved from € –12 million in the equivalent quarter of the previous year to € –10 million (€ –23 million for 1H 2019/2020 compared to € –28 million for 1H 2018/2019). The net result after taxes, including income taxes, was € 14 million for the second quarter (previous year: € 8 million) and € –16 million for the first six months (previous year: € –6 million).
Progress with free cash flow in second quarter
The considerable reduction in both the actuarial interest rate for pensions in Germany and the net loss for the quarter were the main reasons for the lower equity of € 244 million at the end of the quarter, which is equivalent to an equity ratio of just over 10 percent. As expected, the net debt on the reporting date increased to € 416 million. This was primarily due to IFRS 16 being applied for the first time (€ 59 million) and the negative free cash flow. The leverage on the reporting date for the quarter was 2.1.
“Our clear goal is to significantly improve the free cash flow by the end of the financial year, so our unequivocal focus is on increasing profitability, on optimizing net working capital, and on asset management,” said Heidelberg CFO Marcus Wassenberg. “The aim of the various measures we have already introduced is to generate additional liquidity of around € 100 million as quickly as possible. At the same time, we are making a conscious effort to further improve cost discipline in all areas of our company with a view to safeguarding profitability in this increasingly difficult economic climate,” he added.
Outlook for financial year 2019/2020 remains unchanged
Heidelberg confirms its targets for financial year 2019/2020 as a whole, with sales at the same level as in the previous year. The target range for EBITDA excluding restructuring result is 6.5 to 7 percent of sales, and a break-even net result after taxes is expected. The leverage should be below the target value of 2.
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