Heidelberg to Cease Production of VLF Offset Presses, Primefire; Will Cut Up to 2,000 Jobs
The management board of Heidelberger Druckmaschinen AG (Heidelberg) has adopted a wide-ranging action package, as announced last year, for a short-term reduction in structural costs and long-term improvements in the Company’s profitability. Focus on the profitable core business and systematic streamlining of the cost base are geared to delivering a €100 million improvement in EBITDA, excluding the restructuring result. At the same time, a return transfer of liquidity reserves from the trust fund will almost completely eliminate net debt, thereby significantly improving Heidelberg’s financial stability.
“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.
Financing secured, net debt to be almost completely eliminated
Heidelberg is significantly improving its liquidity with a return transfer of part of the liquidity reserves in the amount of approximately €375 million from the trust fund managed by Heidelberg Pension-Trust e.V., which was established in 2005. In this way, the Company plans to significantly improve its financing structure by reducing debt – notably including the repurchase of a €150 million high-yield bond – and to systematically press ahead with its realignment.
“This marks a milestone for Heidelberg. At a single stroke, we are freeing ourselves from the severe debt burden and, at the same time, can systematically implement the requisite operational realignment within the next 18 months,” said Marcus A. Wassenberg, Heidelberg’s Chief Financial Officer. “This will make us crisis-proof in the short term and significantly improve profitability so that we can press ahead with our digital realignment. We are pleased that this financial plan of action has the support of the employee representatives and the trade union as well as all the lending banks.”
With the return transfer, the Board of Heidelberg Pension-Trust has resolved to support Heidelberg’s stabilization and reduce the assets held in trust to a level that provides for those pension entitlements not covered by the statutory pension plan. The measure consequently has no negative impact on existing and future pension entitlements.
“We are dealing responsibly with the funds placed in trust by Heidelberg, in the interests both of the pension beneficiaries and of the Company. The sounder the Company’s financial base, the better it is for its pension beneficiaries,” said Prof. Rupert Felder, Chief Executive Officer of Heidelberg Pension-Trust e.V.
Action package to increase profitability
Heidelberg is to implement a wide-ranging action package for the Company’s realignment. In this, Heidelberg is able to build on a strong brand and direct its future focus to the profitable core business with an average EBITDA margin of over 8%.
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 (VLF) 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.
As has already been announced, 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 corona 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.
Current financial year impacted by action package and economic environment
The non-recurring expenses for the action package and the increasingly deteriorating global economic environment due to the corona pandemic will negatively impact sales and earnings in the current financial year more severely than so far anticipated. It must therefore be assumed that full-year sales will now be well below the prior-year level of some €2.490 billion and that hence the forecast EBITDA range – excluding the restructuring result and one-time proceeds from the sale of Hi-Tech Coatings – of between 5.5 and 6.0 % can longer be attained. Including the non-recurring charges due to the Company’s realignment, the current expectation is for the net result after taxes to be negative, reflecting the size of the restructuring expenses.
Priority following realignment is on increasing profitability
The measures announced today 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 corona pandemic – there may once again be a negative net result after taxes in the transition year, too. It is anticipated 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.
Focus on technology leadership in core business with emphasis on digitalization to advance
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.
With its integrated solutions portfolio and new digital business models such as subscription, Heidelberg will continue to expand its leading technological role with the aim of even better driving its customers’ success going forward and consequently returning to sustainable growth. 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 preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of the staff of Printing Impressions.