Incoming Orders in First Quarter the Highest in Four Years at Heidelberg

HEIDELBERG, GERMANY—August 8, 2012—In the first quarter of financial year 2012/2013 (April 1 to June 30, 2012), Heidelberger Druckmaschinen Aktiengesellschaft (Heidelberg) recorded incoming orders of EUR 890 million (previous year: EUR 665 million), the highest figure in four years, thanks to the investment impetus created by the drupa industry trade show in May 2012. Due to the high volume of orders, the order backlog in the first quarter rose significantly to EUR 856 million, which is EUR 350 million higher than in the previous quarter.

"As expected, drupa gave the industry a significant boost, which led to our highest quarterly incoming orders in four years," said Heidelberg CFO Dirk Kaliebe. "As regards further developments, we are keeping a very close eye on global economic and market risks, because economic uncertainties have recently heightened again due to the euro and sovereign debt crises," he added.

In the first three months of the current financial year, Heidelberg recorded sales of EUR 520 million (previous year EUR 544 million), which was in line with expectations. As usual, customers were reluctant to invest in the run-up to drupa. The majority of orders placed at the trade show will, as planned, primarily be reflected in the Group's sales figures for the second half of the financial year.

The result of operating activities excluding special items (EBIT) for the first quarter is EUR -58 million (previous year: EUR -25 million). As expected, it was negatively affected by small profit contributions due to the lower sales volume in the first quarter, and by trade show and product launch costs. Special items totaled some EUR 6 million in the quarter under review and were mainly related to the FOCUS 2012 efficiency program.

During the period under review, the financial result improved from EUR -22 million to EUR -19 million. Income before taxes fell from EUR -47 million for the same quarter the previous year to EUR -82 million. And the net loss for the quarter was EUR -74 million (previous year: EUR -46 million).

The greater need for funds to produce the machines ordered, the pro rata payments associated with FOCUS 2012, and the net loss for the quarter had a negative impact on the free cash flow. In the quarter under review, it was in line with the company's expectations at EUR -112 million (previous year: EUR -6 million). As a result, the net financial debt in the first quarter increased to EUR 346 million, following a figure of EUR 243 million at the end of the previous quarter. The company's financing structure benefits from medium- to long-term secured and diversified credit lines totaling some EUR 900 million.

"Heidelberg has an appropriately diversified financing structure in terms of both financing sources and maturity profile. This gives the company a stable liquidity framework with sufficient flexibility," said Kaliebe. "Our FOCUS 2012 efficiency program is progressing completely in line with our planning. As already indicated, the payments for the program will initially have a marked negative impact on the free cash flow in the current financial year. The annual cost savings of around EUR 180 million associated with the program will take full effect from financial year 2013/2014 onward," he added.

In the first quarter of financial year 2012/2013, the workforce fell significantly, with over 500 fewer employees than at the start of the financial year. As at June 30, 2012, the Heidelberg Group thus had a workforce of 14,899 worldwide (previous year: 15,718).

Business results in the segments
In the Heidelberg Equipment segment, the positive cause of drupa led to incoming orders of EUR 598 million in the first quarter. This was 48 percent up on the previous year (EUR 404 million) and increased the segment's order backlog to EUR 788 million (previous quarter EUR 460 million). Orders for large-format sheetfed offset presses and the launch of a new machine platform had a particularly positive effect on this figure. As expected, however, the segment's sales of EUR 255 million in the first quarter were 15 percent down on the previous year due to customers' reluctance to invest in the run-up to drupa. This reluctance, combined with trade show and product launch costs, led to the segment recording an result of operating activities excluding special items of EUR -71 million (previous year EUR -39 million).

The Heidelberg Services segment also benefited from the good cause of drupa. At EUR 289 million, incoming orders were 12 percent up on the previous year (EUR 258 million). Incoming orders in the growth segments of consumables and the Prinect industry software were particularly encouraging, as were those for maintenance agreement products. At EUR 262 million, net sales were 9 percent up on the same quarter the previous year (EUR 241 million). Primarily due to trade show costs, the operating result excluding special items remained at the previous year's level of EUR 10 million despite higher sales.

The Heidelberg Financial Services segment once again achieved a positive result of operating activities in the quarter under review. At around EUR 3 million, it was slightly below the figure for the same quarter the previous year (approx. EUR 4 million).

Business developments in the regions
Favored by drupa, the Europe, Middle East and Africa region recorded incoming orders of EUR 361 million in the first quarter, which was 47 percent higher than in the same quarter the previous year. Great Britain in particular, but also Germany, benefited from orders placed at the trade show. Heidelberg generated incoming orders of EUR 93 million in the Eastern Europe region, 27 percent up on the previous year. Incoming orders in North America were also very encouraging. At EUR 117 million, they were 54 percent higher than the previous year's figure for the region. This is a clear indication that customers, especially in the United States, are once again willing to invest. In South America, incoming orders in the first quarter were 11 percent up on the previous year at EUR 39 million. And in the Asia/Pacific region, the previous year's figure for incoming orders improved by 19 percent to EUR 280 million. The investment volume in Japan and China in particular once again rose significantly or remained at a high level.

Outlook for the current and next financial years unchanged—economic uncertainties grow
Due to the reluctance to invest in the run-up to drupa, the world's largest trade show of the industry, Heidelberg is expecting a significant shift in sales to the second half of the year as a result of orders placed at the trade show and an associated increase in profit contributions. For the current financial year, the company still expects to achieve a clearly positive result of operating activities excluding special items, but the cost of drupa and product launch costs will be a burden in the first half of the year in particular. Up to one third of the savings from the FOCUS 2012 efficiency program of some EUR 180 million will already take effect in the current financial year, but the costs associated with this program will have a negative impact on the financial result and, due to this result, income before taxes will be negative. In financial year 2012/2013, free cash flow will be considerably burdened by the pro rata expenditures for FOCUS 2012, leading to a temporary increase of net financial debt.

Economic uncertainties have continued to grow overall due to the worsening euro and sovereign debt crises. As of midyear 2012, the global economy continues to be 

dominated by the effects of the crises in the euro zone. At the beginning of the year, it looked as though the economy would overcome the lingering weakness. More recently, however, the increasing risk premiums on Spanish and Italian government bonds and the growing concerns over Greece's future have shown that the debt crisis and the crisis of confidence in Europe remain unresolved. The supportive measures and recent statements from sources such as the European Central Bank (ECB) could at least partially relieve uncertainty in the markets.

As soon as there is a clearer picture of macroeconomic and market developments and of the level of post-trade show business, the forecast will be further substantiated.

During the next financial year, the cost savings resulting from FOCUS 2012 will take full effect and lead to annual savings of some EUR 180 million. Heidelberg is therefore still looking to achieve a result of operating activities excluding special items of around EUR 150 million and a net profit in financial year 2013/2014.

Other dates:
The figures for the second quarter of financial year 2012/2013 are due to be published on November 7, 2012.

Source: Heidelberg.