Heidelberg Initiates Further Reorganization; Announces Financial Targets, Site ConsolidationJune 11, 2014
New business models for product segments with weak margins
The portfolio analysis conducted last year showed that the only way to achieve economic success in some product areas is to switch to new business models. Over the next six months, the company is therefore planning to take decisions on discontinuing some operations or radically altering the vertical range of manufacture, in some cases with the involvement of partners.
Further consolidation of site structure
Ongoing projects to boost efficiency have already led to a streamlining of structures at the Group's key sites in Heidelberg and Wiesloch/Walldorf. By the end of financial year 2014/2015, there are plans to integrate the administrative headquarters into the Wiesloch/Walldorf production site. This will involve the relocation of the Management Board and some 500 employees. This step will further improve the harnessing of synergies between the two sites and lead to annual savings in operating costs in the low single-digit million euro range. It will also create the world's largest demonstration print shop for both packaging and commercial printing, where customers will get a live insight into the interplay of printing technology, future-focused service concepts and consumables.
"The Heidelberg corporate culture is entering a new era," concluded Linzbach. "The key focus when taking decisions will be on both our customers' results and our own. We are bringing key functions and operational areas into closer proximity and are gearing our activities more toward the market and our customers. This will make Heidelberg leaner and more profitable. The measures we are planning in the current financial year will lay the foundation for achieving an EBITDA margin of no less than 8 percent by financial year 2015/2016."
Target result for financial year 2013/2014 achieved with net profit of € 4 million
Although factors such as exchange rate movements resulted in a decline in Group sales from the previous year's figure of € 2.735 billion to € 2.434 billion (€ 2.536 billion after adjustment for exchange rate movements) in reporting year 2013/2014, all result-related KPIs were far better than in the previous financial year. For example, EBITDA excluding special items rose to € 143 million in the financial year just closed (previous year: € 80 million). This led to an improvement in the EBITDA margin from about 3 percent to approx. 6 percent. Within twelve months, the result of operating activities (EBIT) excluding special items climbed from € -3 million in the previous year to € 72 million. Special items in the reporting period amounted to € -10 million (previous year: € -65 million) and the financial result was € -60 million (previous year: € -59 million). This led to a net profit for the year of € 4 million (previous year: € -117 million).
Positive cash flow and free cash flow—further reduction in net debt, with leverage < 2
The cash flow and free cash flow were both positive in the reporting year. Reducing the company's capital commitment has compensated for payments for the Focus efficiency program totaling some € 95 million and enabled a positive free cash flow of € 22 million to be achieved (previous year: € -18 million). This reduced the net debt at the end of the financial year to € 238 million (previous year: € 261 million).
"Not only have we achieved all our results targets, but our asset and net working capital management program has also brought further successes in terms of cash flow and free cash flow and thus reducing our net debt," said Heidelberg CFO Dirk Kaliebe. "At the end of the financial year, we thus achieved our goal of reducing the leverage (net financial debt divided by EBITDA) to less than two for the first time in many years," he added.
During the reporting year, the company's financing structure was further optimized and appropriately diversified - with regard to both financing sources and maturity profile. Heidelberg currently has total credit facilities of about € 790 million at its disposal until financial year 2017/2018.
"Our stable financing framework and the stronger capital structure due to the new anchor investor give us the freedom to carry out our planned strategic measures promptly," stressed Kaliebe.
Outlook: Plans to improve result in financial year 2014/2015—target EBITDA margin of no less than 8 percent in financial year 2015/2016
Heidelberg is expecting to match the sales achieved in the reporting year in the current financial year 2014/2015. As in the previous year, sales are once again expected to be higher in the second half of the financial year than in the first.
Having succeeded, as forecast, in achieving a positive annual result in reporting year 2013/2014, the declared goal for financial year 2014/2015 is to further improve the company's profitability in order to get closer to the medium-term objective of an operating margin of no less than 8 percent in terms of EBITDA and improve the result after taxes in spite of the higher level of interest expense for financial liabilities. The extent of the improvement in the current financial year 2014/2015 will essentially depend on the realizability and timing of the portfolio optimization measures that represent the strategic focus from this year onward. Provided the initiatives to improve the margin and optimize the portfolio are successfully implemented in the current financial year, the company expects to be able to achieve a margin of no less than 8 percent EBITDA on sales by financial year 2015/2016. The planned earnings improvements, combined with the measures to reduce or efficiently use the tied-up capital, should strengthen the capital structure and keep the net financial debt at a low level. This will create the conditions required to optimize the financial result as targeted.
As of March 31, 2014, the Heidelberg Group had a global workforce of 12,539 plus 502 trainees (previous year: 13,694 plus 521 trainees).