Heidelberg orders down 10 per cent – cost cutting continues

With Heidelberg this week pulling its presence from next year’s PacPrint13 trade exhibition, the company has made no secret that it is still struggling through lean times. This week’s release of the company’s financial results highlights just how far it will need to go in its ongoing commitment to cutting costs following a 10 per cent drop in new equipment orders for the FY2012.

The German offset giant reported that incoming orders for its Equipment division were down 10 per cent from the previous financial year’s results, at (EUR) €1.476 billion. While the annual operating result for the division was a €15 million improvement on the previous year’s, it still resulted in a total loss of €-83 million.

The company said that its total incoming orders for the year were down seven per cent on the previous year’s figures, standing at €2.555 billion – over €20 million less than the previous period’s €2.757 billion result. The company attributes the previous year’s results had been boosted by ExpoPrint in Brazil and IPEX in the UK.

In a financial results document released on 14 June, Heidelberg stated that it had “failed to achieve the targets it had set itself for the year under review due to changes in the underlying condition.”

The company says that while the first half of the financial year ending 2012 slightly exceeded the level of the of the preceding half year, the second half of the year was hit by a worsening of the underlying economic conditions and restrained investment activity in the fourth quarter, which resulted in orders of €1.222 billion.

“The second half of financial year 2011/2012 in particular was shaped by great uncertainty. However, the positive results of the leading trade show drupa showed that confidence within the industry is returning and that the reticence to invest is slowly abating,” says Heidelberg’s CEO, Bernhard Schreier (pictured).

While this year’s drupa trade show injected an anticipated €800 million or more in new orders in the first quarter of the current financial year, the company says that the trade fair also came with its own burden of associated costs, including product launch events in the first part of the year.

“Drupa provided us with the perfect platform to demonstrate our leading market position. Now it is imperative to take advantage of the improved mood in the industry and of the opportunities in the market as well as to continue with the systematic implementation of the cost-cutting measures and thus returning to profitability in 2014,” says Schreier.

With the economic landscape in Europe remaining uncertain, it was no surprise Heidelberg reported a fall in sales in industrialised nation markets but rose in the emerging markets, largely due to relative stability in China, Brazil and Russia.

The Eastman Kodak insolvency in the US earlier this year had a knock-on effect that resulted in a higher risk provision for Heidelberg, negatively impacting its results to the tune of a ‘low two-digit million euro range.’ Additionally, special items for the financial year came to €142 million, which resulted in an operating result, after special items, of €-139 million – or €133 million less than the previous year’s EUR6 million.

The bottom line for Heidelberg still looks grim, with the company reporting an annual loss of EUR €-230 million, this is just under double the previous year’s loss of €-129 million. However, the company reported that its overall financial result for the past financial year of €-90 million, was an improvement on the previous year’s €-149 million.

“Despite weak development in the industry and non-recurring costs, our operating result held stable compared to the previous year. Systematic implementation of the measures in our FOCUS 2012 efficiency program means we are on track to reach our medium-term profitability targets,” says Dirk Kaliebe, Heidelberg’s CFO. “As we have reduced our working capital through successful asset management in the year under review, we have been able to cut our financing requirements accordingly.”

The company’s Services division and Financial division remained relatively steady in their results, with the Services division recording a slight three per cent drop and an operating result excluding special items of €72 million.  Meanwhile, the Financial division recorded a steady operating result of €14 million, slightly down from the previous year’s €18 million.

Heidelberg has been undergoing an efficiency program of change, FOCUS 2012, which as seen a reduction in staff and other overhead costs. However, the company says that it expects around a third of the program’s planned annual savings of €180 million to be achieved in the financial year ending 2013.

Among the FOCUS 2012 program implementations was the 15 per cent cut to the company’s overall capacities, including jobs and operational capacities. Additionally, the work hours for employees at the company’s German sites has been cut to 31.5 hours a week with remuneration levels reduced accordingly. By mid 2014, the company expects its total number of employees to be cut to 14,000. At the end of March this year, the company had a workforce of 15,414.

The company says it is hopeful that the market will recover in FY2013-2014. It is, however, cautious in its outlook, warning investors that, if the market recovery does not continue as swiftly as expected over the coming year, it could lead to a fall in sales against the current financial year.