Heidelberg profits for first time since 2008

Net result after taxes increases by €28 million - positive half-year result for the first time in ten years

Profitability for Heidelberger Druckmaschinen AG (Heidelberg) has improved significantly, resulting in a half-year net profit after taxes of €+0.3 million for the first time since financial year 2007/08.

In the second quarter, the company made further progress in its future-oriented strategic issues such as technology leadership, digital transformation, and operational excellence. This was achieved through, among other things, market successes with innovative digital presses, establishing new business models, and enhancing efficiency by adapting leadership structures.

"The process of converting our company into a state-of-the-art digital technology group is progressing well. With the launch of new subscription models for our customers and our portfolio of innovative products for the eMobility growth sector, we're moving into new territory that offers enormous potential for growth. Heidelberg will be setting new standards when it comes to technologies of the future, digitization, and efficiency. The necessary cultural shift has only just begun,” said Rainer Hundsdörfer, CEO of Heidelberg.

Growth potential thanks to new business models

Heidelberg is set for growth in the digitally printed packaging and labels industry, especially with digital label presses from Gallus. Heidelberg reported numerous orders for the new Gallus Labelfire at the Labelexpo trade show.

Heidelberg aims to build on the developing the industrial digital printing market. The period under review saw shipment of the first industrial digital packaging printing press, Primefire. Further customer installations will be following shortly. Series production for these digital printing systems is scheduled to start at the beginning of 2018.

In the second quarter, Heidelberg began the pilot phase for launching new business models. This involves offering customers a full package of machinery, services, consumables, and software in a subscription model.

Implementation of transformation program for operations

Over the next few years, Heidelberg has put in place operational measures that aim to deliver cost savings of €50 million through increased efficiency. One of the measures has already been executed, which was to relocate the development centre to Wiesloch and standardising the machine platforms.

In addition, Heidelberg is adapting its leadership structures to the challenges of digitisation by the end of the financial year. The aim is to achieve a leaner, more efficient, and more agile organisation with fewer hierarchies and less complexity. A corresponding transformation project was launched by the management board in October and will play a key role in achieving the efficiency targets.

Achieving profitability after first half of the year

In operational terms, the figures for the first half of financial year 2017/18 were as planned. Despite negative exchange rate effects of €18 million and the systematic reduction of trading activities with remarketed equipment, sales after six months were €1,054 million, almost the same as the previous year's level of €1,072 million.

As expected, incoming orders in the post-drupa year of €1,234 million were below the previous year's figure (H1 2016/17: €1,408 million). The order backlog was a solid €630 million compared to the €765 million at September 30, 2016, which was boosted by drupa.

Profitability rose significantly on the previous year's figures. EBITDA excluding restructuring result was up from €45 million to €60 million after two quarters, with the EBITDA margin reaching 8.2 percent in the second quarter, following 7.5 percent in the same period of the previous year. EBIT excluding restructuring result was €27 million (previous year: €11 million). The much lower financing costs led to the financial result improving from €-29 million to €-24 million. At €+0.3 million, the net result after taxes (after income taxes) was thus around €28 million up on the previous year's figure (€-28 million).

The free cash flow (€-32 million, previous year: €0 million) was influenced by the acquisitions and investments made in the first six months in connection with constructing the new development center in Wiesloch. The improvements at operating level, the conversion of a convertible bond in July 2017, and a higher pension discount rate than in the same period of the previous year led to an increase in shareholders' equity to €381 million (previous year: €126 million). The equity ratio thus rose to 17.5 percent (previous year: 5.9 percent). The net financial debt at September 30, 2017 was €259 million (previous year: €276 million) and the leverage was significantly lower than the unchanged target value of 2 at 1.3.

"Heidelberg is on a very sound financial footing, with financing secured for the long term. This will enable us to independently fund the strategic measures and the growth we are aiming for. Systematically harnessing the potential from the efficiency program will also secure our medium-term profitability targets,” said Dirk Kaliebe, CFO at Heidelberg.

Exchange rate effects and reluctance to invest on the U.S. market

The upturn in business that is typical of the second half of the year and the acquisitions that have already been completed are set to result in sales in financial year 2017/18 reaching the same level as the previous year.

However, negative exchange rate effects in Asia in particular, the systematic reduction of trading activities with remarketed equipment, and the noticeable reluctance to invest on the North American market could have a dampening effect on order and sales volumes later in the financial year.

After weighing up the opportunities and risks, Heidelberg still has its sights set on the targets for financial year 2017/18 as a whole. In financial year 2017/18, the company aims to achieve an EBITDA margin in the region of 7 to 7.5% through efficiency improvement measures. Compared to the previous year and factoring in a further improvement in the financial result, net profit after taxes is set to show a moderate increase.

The strategic focus in the second half of the financial year will continue to be on initiating and implementing the strategic measures that form part of "Heidelberg goes digital" - strengthening the company's technology leadership, rapid digital transformation, and achieving operational excellence. Although these activities will not have a noticeable impact on operations in financial year 2017/18, they will play an important role in helping achieve the company's medium-term targets.