Operational business at Heidelberger Druckmaschinen AG (Heidelberg) continued to improve throughout the third quarter of financial year 2010/2011 (October 1 to December 31, 2010). As expected, both incoming orders and sales were again up on the previous year. Coupled with the achieved efficiency increases brought about by the reorganization, this upward trend enabled Heidelberg to achieve a positive operating result before special items for the first time in the current financial year.

At EUR 684 million, incoming orders in the third quarter were 12 percent up on the previous year's figure (EUR 609 million), with exchange rate effects accounting for EUR 44 million of this. This represents an increase of 5 percent over the previous quarter (EUR 650 million). All in all, order levels improved by 25 percent (18 percent after adjustment for exchange rate effects) over the first nine months, reaching EUR 2,120 million (previous year: EUR 1,693 million).

Sales continued to improve in the third quarter, reaching the highest level for the current financial year at EUR 687 million. This includes EUR 43 million from exchange rate effects. As a result, sales revenues for the quarter under review were 19 percent up on the previous year (EUR 578 million) and 9 percent up on the previous quarter. After nine months, total sales amounted to EUR 1,883 million - an improvement of 18 percent (11 percent after adjustment for exchange rate effects) on the previous year (EUR 1,591 million). The order backlog of the Heidelberg Group increased to EUR 770 million in the third quarter (previous year: EUR 626 million).

"Thanks to stable growth in the global economy, our incoming orders increased in all regions and divisions during the third quarter. Nonetheless, the economic recovery is still marked by regional differences. While incoming orders are rising steadily in Asia, Europe, and Latin America, the recovery in the key U.S. market has been slow to set in," said Heidelberg Group CEO Bernhard Schreier. "The positive developments of the past nine months show that we are on track to achieve our target - a break-even operating result for the current financial year."

Positive operating result
As planned, Heidelberg generated a positive result of operating activities excluding special items of EUR 15 million during the third quarter (previous year: EUR -13 million). The company benefited from the increased sales revenues brought about by a more favorable sales mix, from improved market conditions, and from cost savings achieved through the reorganization. Over the first nine months, results were up a total of EUR 115 million on the previous year (EUR -141 million), thereby reducing the shortfall to just EUR -26 million at the end of the quarter. After nine months, and following the partial release of provisions for efficiency improvements recorded the previous year, special items went positive at EUR 26 million and generated a break-even operating result including special items.

The financial result in the third quarter was EUR -16 million (previous year: EUR -31 million). Interest saved from the repayment of financial liabilities and non-recurring earnings from the sale of a company enabled Heidelberg to significantly reduce its loss. However, due to high financing costs and non-recurring expenditures linked to the repayment of financial liabilities, as expected the overall financial result after nine months was down on the previous year (EUR -79 million) at EUR -103 million.

The income before taxes improved to EUR -103 million compared to the previous year (EUR -201 million). Tax income from a retrospective increase in the corporate income tax credit sold last year is benefiting taxes on income. After three quarters, the net loss for the current financial year is EUR -78 million. A profit of EUR 10 million was generated in the quarter under review.

Free cashflow was again positive in the third quarter, at EUR 22 million (previous year: EUR 3 million). Compared with the equivalent nine months of the previous year, free cashflow improved to a total of EUR 91million following a figure of EUR -15 million in the previous year. This was primarily due to the reduction in net working capital and the lower annual net loss.

"Because sales revenues continued to grow as expected and efficiency improvements were also achieved, we generated a positive operating result before special items for the first time in the current financial year," said Dirk Kaliebe, CFO of the Heidelberg Group. "Thanks to the successful capital increase in September last year and early repayment of the loan from the Special Program of the Reconstruction Loan Corporation (KfW) at the end of December, we were able to further improve our financing structure, significantly reduce our net debt, and further increase our equity ratio. All in all, we have thus created solid conditions for future refinancing."

Simplified financing structure at Heidelberg
Heidelberg used all the net proceeds from the capital increase in the second quarter to repay financial liabilities and reduce existing loan agreements by approximately EUR 400 million. This reduced the company's future interest expenditure significantly. During the quarter under review, Heidelberg repaid the remaining EUR 100 million of the loan from the special program of the KfW in full and ahead of schedule following reallocation within the financing structure. With total financing reduced to just under EUR 900 million, the basis for future refinancing at the Heidelberg Group is considerably improved.
Financial liabilities at the end of the quarter were EUR 369 million. Net financial debt dropped to EUR 220 million in the third quarter, while the equity ratio increased from around 30 percent in the previous quarter to approximately 33 percent.

At December 31, 2010, Heidelberg had 15,981 employees worldwide. During the first nine months of the current financial year, the headcount dropped by a total of 515.

Business results in the divisions
In the Heidelberg Equipment Division, incoming orders of EUR 402 million in the third quarter were up on both the previous year and the preceding quarter. Sales increased again in the third quarter to EUR 417 million. This high growth is primarily the result of higher sales of medium- and large-format sheetfed offset presses. The result of operating activities before special items improved significantly in the first nine months of the financial year by around a third to EUR -95 million (previous year: EUR -147 million). In the Heidelberg Services Division, which is less dependent on the economic climate, incoming orders of EUR 278 million in the quarter under review matched the high level of the previous quarters. Sales revenues also stabilized at a high level in the third quarter, at EUR 267 million. After nine months, the division recorded moderate growth across all services and products compared to the previous year. Growth was particularly strong in consumables. Compared to the previous year, the operating result before special items improved significantly for the first nine months to EUR 58 million (previous year: break-even operating result). The Heidelberg Financial Services Division once again achieved a positive operating result in the quarter under review. After three quarters, the overall result was EUR 11 million (previous year: EUR 6 million).

Business developments in the regions
In the third quarter, incoming orders in all regions were up on the previous year. In the North America region, too, incoming orders for the third quarter improved over the previous year and previous quarter. The picture is somewhat different when it comes to sales revenues, however. While the figures for the first three quarters showed a clear improvement on the previous year's levels in Europe, the Middle East & Africa, Eastern Europe, Latin America, and Asia/Pacific, sales in North America were still below last year's level after adjustment for exchange rate effects.  

Outlook
For the current financial year 2010/2011, Heidelberg continues to project a modest growth in sales after adjustment for exchange rate effects. The result of operating activities will benefit from the increasing profit contributions as well as from the cost-reduction measures that have been realized so far. Assuming stable economic developments, the company continues to strive for a break-even operating result for the current financial year. When looking at how the economy will develop, the group's financial year planning takes into account the respective product mix prevalent in the individual markets. Heidelberg continues to focus on limiting the commitment of funds. Nevertheless, the enormous growth in financing costs and the one-time effects resulting from the repayment of financial liabilities from the proceeds of the capital increase will place a heavy burden on the financial result. However, the repayment of financial liabilities following the successful capital increase will have a mitigating effect during the remaining months of the current financial year. For the current financial year we therefore continue to anticipate a marked net loss.