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Heidelberg Sales Stable, North American Market Showing Weakness

Press release from the issuing company

February 5, 2008 -- Heidelberg is publishing its financial statements for the first nine months (April 1 to December 31, 2007) of financial year 2007/2008. At 2.568 billion Euro, Heidelberg Group sales during the period under review almost matched last year's high level (previous year: 2.589 billion Euro). After adjustments for exchange rate movements, sales were two percent up. Incoming orders after nine months amounted to 2.824 billion Euro (previous year: 2.913 billion Euro). The success of the traditional Open House events held in October and November at various sales locations in Germany helped the Heidelberg Group achieve incoming orders totaling 958 million Euro in the third quarter alone. In terms of incoming orders, this made the third quarter the strongest so far of the current financial year and represented a four percent improvement over last year's figure. As a result of the volume of incoming orders in the third quarter, the order backlog at December 31, 2007 was slightly up on the previous quarter's level at 1.196 billion Euro (previous quarter: 1.184 billion Euro).
"As a result of the way business has gone over the past few months and in spite of recent developments in the U.S., we expect to match the previous year's sales of around 3.8 billion Euro in the current financial year and to attain a result of operating activities in excess of last year's adjusted figure of around 300 million Euro," said Heidelberg CEO Bernhard Schreier.
The Heidelberg Group recorded an operating result of 177 million Euro in the period under review (previous year: 202 million Euro). This corresponds to an operating return on sales of around seven percent. The previous year's figure of 202 million Euro included a positive one-time effect amounting to around 25 million Euro from the sale of Linotype GmbH. The net profit was 87 million Euro (previous year: 180 million Euro). In the third quarter last year, Heidelberg posted tax revenue of 73 million Euro from a corporation tax credit.
"In the third quarter alone, we achieved a sound operating return on sales of 8.7 percent," said Heidelberg CFO Dirk Kaliebe. "For the fourth quarter of financial year 2007/2008, we are currently expecting sales well above the one billion Euro mark, which means we will match the previous year's figure. We are predicting an increase in the previous year's adjusted net profit of 3.8 percent to between 4.5 and 5.0 percent of sales," he added.
At December 31, 2007, the Heidelberg Group had a workforce of 19,508 worldwide (19,171 at March 31, 2007). Overall, the workforce increased by 337 during the financial year. Adjusted by the number of trainees, the increase is 187, primarily employed in production.
Results in the divisions and regions
In the Press Division (offset printing), sales stood at a level of 2.238 billion Euro in the period under review (previous year: 2.251 billion Euro). Incoming orders amounted to 2.484 billion Euro (previous year: 2.551 billion Euro). The operating result after nine months was 150 million Euro (previous year: 157 million Euro including one-time effects).
In the Postpress Division (finishing), sales after three quarters amounted to 307 million Euro (previous year: 309 million Euro). Incoming orders totaled 317 million Euro (previous year: 333 million Euro). In the period under review, an operating result of minus two million Euro was recorded (previous year: seven million Euro).
In the Financial Services Division, we have once again been able to lower the capital commitment compared to previous quarters through the consistent support of global, regional and local financing partners. An operating profit of 29 million Euro was recorded in the period under review (previous year: 38 million Euro).
Sales and incoming orders after nine months were slightly below the previous year's high level in the EMEA, North America, Latin America and Asia/Pacific regions.
There are three main reasons for the North America region being down on the previous year's incoming order figures for the third quarter. Firstly, the Graph Expo trade show took place during this quarter last year. Secondly, the continuing weakness of the U.S. dollar is making German suppliers less competitive on this market in particular. Thirdly, the difficulties on the real-estate market and the associated speculation regarding a possible recession have also affected the North American print media industry's readiness to invest.
In the Asia/Pacific region, incoming orders for the third quarter were significantly up on the previous year's figures on the Chinese market. At our site in Qingpu, near Shanghai, we have made a start on our plans for the third stage of expansion. Sales in the entire region remained below the previous year's third-quarter and cumulative nine-monthly figures only due to less favorable exchange rates.
The Eastern Europe region's figures after three quarters were significantly up on the previous year. Heidelberg is enjoying particular success on the region's two main markets - Russia and Poland.
Germany succeeded in increasing its sales and is on course for a record year.
Heidelberg strengthened its position in the EMEA region in the third quarter by taking over the sales activities of consumables supplier Stielund & Taekker in Denmark and Sweden, together with around 35 employees. This put Heidelberg in a position to establish itself as the company with the highest sales of consumables in the print media industry in the Nordic and Baltic countries.
Heidelberg has also combined all global business with consumables under the name "Saphira". The company now offers a wide-ranging portfolio for standard print jobs and special applications and covers the full gamut of production requirements in prepress, press and postpress.
Outlook for full financial year 2007/2008
Heidelberg is currently projecting fourth-quarter sales substantially in excess of one billion Euro for financial year 2007/2008 so that, despite the economic uncertainties in the U.S. and the impact of a strong euro, particularly in the U.S. and the Asia/Pacific region, the company will achieve sales of around 3.8 billion Euro for the year as a whole.
Worsening exchange rate structures, higher personnel expenses and higher outlays in the raw material and energy sectors have had a particularly negative effect on the result and will continue to do so in the future. Heidelberg has successfully countered this through its efficiency-boosting and cost-reduction measures in all areas, which have compensated for these burdens. As a result, the company is on course to exceed the previous year's adjusted operating profit of around 300 million Euro in the current financial year.
As things stand at present, the financial result will be down on the previous year due, among other things, to changed capital market conditions. Favored by developments such as the tax reform and internal optimization measures regarding the tax rate, the company intends to boost net profit from an adjusted 3.8 percent of sales last year to between 4.5 and 5.0 percent for the current financial year. Heidelberg is also looking for free cash flow to again account for four percent of sales during the current financial year.
The situation in the coming financial years will largely depend on the further development of the global economy and the course of the two-week drupa 2008 trade show, which gets under way on May 29. Heidelberg will continue to focus on its strategic approach of further actively expanding services and placing priority on package printing.

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