Heidelberg to implement action package to increase profitability.
Heidelberg announced a new action package to increase profitability. The action package was announced last year for a a short-term reduction in structural costs and long-term improvements in the company’s profitability.
As part of the action package, the press manufacturer will be closing unprofitable businesses as well as implementing sharp cuts in production and structural costs. As a result, production of Primefire and very large format printing will be stopped. Heidelberg will be focusing on its core profitable business.
The package also includes the global reduction in workforce by up to 2,000 jobs.
“Heidelberg’s realignment is a radical step for our Company that also involves some painful changes. As hard as it was for us to make this decision, it is necessary in order to put our Company back on track for success. Discontinuing unprofitable products enables us to focus on our strong, profitable core. This is where we will further extend Heidelberg’s leading market position by leveraging the opportunities of digitalization. Going forward, we will continue to provide our customers worldwide with technologically leading digital solutions and services across the board,” said Heidelberg’s Chief Executive Officer Rainer Hundsdörfer.
Primefire to be discontinued
Heidelberg will discontinue individual products that earn far too little and significantly impact the Company’s profitability with an annual loss totaling some €50 million. In digital printing, for example, the market for the Primefire 106 product has grown much more slowly than anticipated because of the difficult industry and market environment.
Similarly, in sheetfed offset printing, the very-large-format product range has been falling well short of sales targets because of a fundamental change in the market structure for this subsegment. To improve overall profitability as soon as possible, production in both businesses is to be discontinued by the end of 2020 at the latest. The aim is to focus Heidelberg consistently on profitable activities in order to secure strong operational performance and profitability under its own power, also when times are difficult.
2,000 jobs to cut worldwide
Heidelberg’s realignment is accompanied by comprehensive streamlining of production costs and structural costs. In total, the planned measures will affect up to 2,000 jobs worldwide. This may also include plant closures.
This reduction in force is an essential part of the long-projected action package for Heidelberg’s realignment, quite independently of what is currently a very difficult business situation due to the COVID-19 pandemic.
Negotiations on the detailed implementation will be taken up in talks with the employee representatives set to begin in the near future. Especially in view of current circumstances, Heidelberg is conscious of its responsibility to the workforce and will work with the employee representatives to ensure that the reduction in force is made as socially responsibly as possible.
Depending on the outcome of negotiations with the employee representatives as well as accounting charges in the financial year 2019/2020, the non-recurring expenses necessary to implement the action package are estimated to total about €300 million.
Focus on profitable businesses
A consistent focus on the company’s profitable businesses where Heidelberg ranks among the world market leaders is at the heart of the realignment. These businesses serve a global market that experts estimate will grow slightly in the years ahead and provide a sound basis for Heidelberg’s products and solutions with a stable long-term print production volume exceeding €400 billion a year.
Heidelberg will be focusing on its intergrated solutions portfolio and new digital models such as subscription.
Future investment spending will focus on full end-to-end digitalization of customer value creation, which primarily means integrated system solutions for machines, software, consumer goods and performance services.
The vision is to create a cross-industry IoT-based platform to automate all customer-supplier relationships. This solution will enable print shops to secure a significant gain in productivity.
The measures announced are to be systematically implemented in the months ahead so that Heidelberg can complete its realignment in the near future. This means a major part of the realignment will be initiated in the financial year 2020/2021, such that – depending on the outcome of negotiations with the employee representatives as well as the economic impact of the COVID-19 pandemic – there may once again be a negative net result after taxes in the transition year. Heidelberg is anticipating that substantial positive effects from the realignment will materialize starting in the financial year 2021/2022.
“With this comprehensive action package and major refinancing, we are doing everything in our power to position Heidelberg so that we are sufficiently resilient to remain profitable even in times of economic uncertainty. The top priority following Heidelberg’s realignment will be profitability,” said Marcus A. Wassenberg, Heidelberg’s Chief Financial Officer.