Heidelberg optimistic over Q3 figures

Heidelberg has released its figures for the first nine months of the current financial year, and issued an upbeat forecast for the 2020-21 year as a whole suggesting that everything is rosy but just how realistic is this?

Rainer Hundsdorfer, CEO of Heidelberg.

Heidelberg says that its customer’s print volumes are returning to the same levels as the previous year, with the packaging sector actually being above that, which suggests that the print industry is recovering from the initial shock of the pandemic, though its not clear that this will translate into new press sales.

The figures for the first nine months, from April 1, 2020 to December 31, 2020, show sales of €1,289 million roughly 24 percent below the €1,690 million from the same period of the previous year. Incoming orders were 25 percent down at €1,421 million as against €1,900 million. 

However, there were signs of a recovery in the third quarter, with incoming orders for this December above those of the previous year at €216 million. Nonetheless, the order intake for the third quarter was €557 million, 12 percent down on the previous year but an improvement on the second quarter result of €518 million, which was 20 percent down on the 2019/2020 figure. 

The third quarter showed sales of €484 million, 15 percent down on Q3 from the previous year, but with free cash flow up 16 percent to €42 million and a net result after taxes of €12 million, 5 percent up on the previous year. 

For the first nine months, the company has achieved a slight net profit after taxes of €3 million, having recorded a loss of € –10 million in the previous year. That is quite an achievement given the carnage that the pandemic has wrought on most companies’ balance sheets.

Part of this is down to cost savings, including short time working, which has accounted for roughly €85 million in savings. Heidelberg also ruthlessly cut several flagship products that weren’t generating enough income, including the sheetfed VLF presses, the Speedmaster XL 145 and 162 and the Primefire 106 B1 inkjet press. These were said to have had an adverse effect on the result amounting to approximately €50 million a year.

Heidelberg has also outsourced more production, agreeing a production joint venture with the Chinese company Masterwork Group. At the same time, Heidelberg is planning to shed approximately 1,600 jobs worldwide by 2023 (just under 1,000 of which will be cut during this financial year). Heidelberg has reached an agreement with the relevant unions and says that this downsizing will lead to savings of more than €170 million for the next financial year in 2022/23.

Heidelberg has also got much better at managing debt. The company succeeded in paying off its €150 million corporate bond early, in September 2020, saving a further €12 million a year in interest payments. 

Heidelberg has also reorganised its pension scheme in Germany, which bolstered the result and shareholder’s equity with earnings of €73 million. Some 90 percent of the company’s net debt is due to pension obligations on the balance sheet. Heidelberg predicts that pension payments will rise by €10 million over the next ten years or so, to roughly €40 million by 2032-35, decreasing thereafter. 

However, the restructuring also includes selling several assets, which has contributed greatly to the current favourable results. But there’s clearly a limit to how much more the company can liquidate.

Amonst the assets sold off was the Belgian subsidiary Cerm, which generated roughly €8 million for Heielberg. It made sense to sell off Cerm, which mainly develops MIS software for the label market, once the company had decided to sell off its Gallus label press subsidiary. And it’s probably better for Cerm and the label industry as a whole that Cerm is once again an independent entity, following a management buy-out. 

However, the planned sale of Gallus for around €120 million fell through. That in turn means that Heidelberg also lost the planned savings from transferring the five Gallus plants and 430 staff to a new owner. More importantly, it means that Gallus customers now have to worry about just how committed Heidelberg is to the label market. 

In November 2020, Heidelberg sold its Belgian production site in Kruibeke for printing chemicals to DC Druck Chemie GmbH, a subsidiary of Langley Holdings PLC, the engineering group that also owns Manroland Sheetfed. 

The sale included two companies, BluePrint Products NV and Hi-Tech Chemicals BV. The site develops and manufactures high-quality printing chemicals in flexographic and offset printing, primarily for the packaging and commercial markets. Heidelberg will still offer these products as part of its overall consumables strategy. The sale generated around €20.5 million and saw around 40 employees transferred to Druck Chemie.

Right at the end of 2020, Heidelberg announced that it had sold off a chunk of its Wiesloch/Walldorf site – some 130,000 square metres – that will be used to create a new, modern industrial and commercial park. The site was bought by VGP, a family-run European developer based in Antwerp, Belgium that already operates 31 parks in Germany and 76 parks in twelve European countries.

The sale has netted Heidelberg roughly €50 million. Rainer Hundsdörfer, Heidelberg’s CEO, explained: “By using space more efficiently, we will save considerable costs at Heidelberg in the future. In addition, we will use the funds this frees up to strengthen our liquidity in times of the Covid-19 pandemic and to press ahead with strategic investments for the future on the path of our digital transformation.”

The Wiesloch/Walldorf site covers a total area of around 840,000 square metres. Of this, around 270,000 square metres has been earmarked to be sold off for redevelopment. So the partnership with VGP is just the first step in this project.

As part of this reorganisation, the company has centralised all of its staff at its Wiesloch/Walldorf plant. This has allowed Heidelberg to sell off its iconic Print Media Academy building in the centre of the city of Heidelberg, which together with the land sold at the Wiesloch/Walldorf plant has brought in over €60 million. The building has been bought by a Luxembourg-based investment company for a purchase price in the low double-digit million-euro range. Heidelberg will retain its headquarters and representative office in rented premises in the PMA building.

Heidelberg has sold off its iconic Print Media Academy building in the heart of the city of Heidelberg.

Hundsdörfer says that he is aware of the “signal effect” of selling this site but added: “With the proceeds from the sale, we can once again strengthen our liquidity in the persistently challenging Covid 19 environment and further increase our financial stability in the long term through future cost savings.” 

I think that this should be seen as part of a wider and much healthier trend amongst vendors to celebrate their manufacturing roots rather than hiding them away. I’ve certainly noticed that most vendors in the UK in recent years have choosen to hold press conferences at their factories rather than a swanky hotel in London and that’s as much about wanting to show off what they’re doing as about cost saving. Well, either that or they’re just not inviting me to the posh dos in London anymore.

Marcus Wassenberg, Heidelberg’s CFO, summed up this restructuring, saying: “All in all, we have made much faster and more successful progress with our company’s transformation than previously reported. We have raised more than €450 million in liquidity, reduced debt by approximately €260 million, moved away from loss-makers and will reduce costs by more than €170 million a year on a sustainable basis. We are therefore confident we will return to attractive profitability in the medium term.”

Wallboxes

Away from the printing industry, Heidelberg has enjoyed some success with its Wallbox chargers for electric vehicles, announcing at the start of this year that it had doubled its manufacturing capacity with a second production line at the Wiesloch-Walldorf site. Both lines are running two shifts, producing both the Heidelberg Wallbox Home Eco and Heidelberg Wallbox Energy Control models (which can charge up to 16 electric vehicles simultaneously) with various cable lengths and customisation options for the German and European markets. Heidelberg has sold over 35,000 Wallbox systems in the past two years. Hundsdörfer notes: “We’ve got big plans for electromobility, including for the coming financial year. Given the growing appeal of electric vehicles in many European countries, we’ll be significantly expanding our sales activities on those markets.”

The company is expecting to earn revenues of around €15 million by the end of  this financial year from these Wallboxes, and claims to have increased its market share for new installations of private charging points within the German market from 2 percent in early 2019 to 20 percent this year.

Heidelberg’s Wallbox charging systems are designed for charging electric cars.

Heidelberg’s management is now predicting that the EBITDA margin for the full year will be around 7 percent, despite sales likely falling by up to €500 million. The EBIDTA margin for last year was 4.3 percent and the company had previously suggested that it would match that. So, why the optimism?

Hundsdörfer explains: “The successful roll-out of the transformation measures has enabled Heidelberg to achieve a clearly positive operating result, despite the huge pressures caused by Covid-19. When it comes to both our finances and our balance sheet, we have done our homework. Signs of recovery are now emerging on the markets in China and Europe that are important to us. That is why our EBITDA target margin excluding restructuring result is being increased to around 7 percent. The growing interest in our contract business and strong demand for our electromobility charging stations are also grounds to be optimistic about the future.”

And it is true that Heidelberg’s overall financial position is looking much stronger than this time a year ago. The net financial debt is €127 million and thus €262 million below the comparable figure from the previous year.

Clearly, Heidelberg is in the midst of a multi-stage transformation and it’s too early to say what kind of a company will emerge from this. It’s almost impossible for a company the size of Heidelberg to execute a handbrake turn without a major crash, especially in the midst of the major economic disruption caused by the pandemic. Yet so far messrs Hundsdorfer and Wasserman appear to have taken a sensible course and to be putting the company on a sound financial footing free of debt and with a more diversified manufacturing base. 

But there are a couple of caveats. Firstly, none of us are as clever as we think we are and there should be more oversight of what exactly they are doing with more board room directors. 

Then there is the complete failure to sell Gallus. I’ve reported dozens of acquisitions and they are mostly routine affairs. But the attempt to sell Gallus to Benpac looked like a car crash in slow motion from the moment it was first announced and I doubt that we have heard the last of this episode.

We will have to wait until June to get the final results for the full year. In the meantime you can find further information from heidelberg.com.


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