Heidelberg Increases Profitability Significantly, EBITDA Soars in Q2
HEIDELBERG, GERMANY—November 5, 2013—Heidelberger Druckmaschinen AG (Heidelberg) significantly improved profitability in the second quarter of financial year 2013/2014 (July 1 to September 30, 2013). As expected, the operating result (EBITDA) in the second quarter was clearly above the previous year's figure. EBITDA for the first half of the year also improved considerably and was positive overall. Net financial debt fell slightly due to the positive free cash flow.
"We have succeeded in improving profitability significantly in the first half of the year," said Heidelberg CEO Gerold Linzbach. "Given regional and exchange rate constraints, we even exceeded our expectations, having made major progress toward achieving our target for the year of a net profit. Our confidence that we will be able to further build on this significantly in the next financial year is growing in light of the improvements at all levels."
Consolidated net sales in the second quarter were € 593 million after € 697 million in the same period the previous year, which was influenced by the drupa trade show. As expected, sales rose by around 18 percent on the previous quarter (€ 504 million). At € 1,097 million, they were around 10 percent lower in the first half of 2013/2014 than in the equivalent period of the previous year (€ 1,217 million). Due to the substantial weakening of individual major foreign currencies, negative exchange rate effects amounted to € 30 million in the second quarter alone, with a total of € 42 million in the first half of the year. This currency weakness also led to considerable reluctance to invest in regions such as Brazil.
Measures to boost profitability deliver results
As expected, all KPIs affecting the results improved significantly in the second quarter on the same period of the previous year thanks to sustained savings from Focus 2012 and measures to increase margins. EBITDA excluding special items rose considerably from € 13 million in the same quarter of the previous year to € 33 million in the quarter under review. After six months, a clearly positive result of € 31 million was achieved following a figure of € -34 million in the same period of the previous year. The operating result (EBIT) excluding special items in the second quarter was also in the black at € 13 million (previous year: € -7 million). The half-yearly figure improved from € -75 million in the previous year to € -7 million.
The financial result in the second quarter was € -16 million (previous year: € -11 million) and € -28 million after six months (previous year: € -23 million). The previous year included positive one-time effects from interest on tax refunds. At € -3 million, the pre-tax result in the quarter under review was almost at break-even (previous year: € -35 million). In the first half of 2013/2014, the pre-tax result improved significantly from € -120 million to € -36 million. The net result in the second quarter of the current financial year was € -9 million (previous year: € -31 million). Consequently, the cumulative net result for the first half of the current year improved to around € -47 million after € -108 million in the previous year.
Incoming orders amounted to € 614 million in the second quarter (previous year: € 667 million). At € 646 million, this matched the average of the previous quarters after adjustment for exchange rate movements. Incoming orders in the first half of 2013/2014 totaled around € 1,257 million. The higher incoming orders of € 1,558 million in the same period the previous year were due, among other things, to the drupa trade show, which was held in the first quarter of 2012/2013. At € 598 million, the Heidelberg Group's order backlog at September 30, 2013 remained stable compared to the previous quarter (€ 602 million).
Free cash flow positive, net financial debt further reduced
The positive trend in free cash flow continued and was € 28 million in the second quarter, improving by around € 31 million on the same quarter the previous year thanks to the increased operating result and the freeing up of net working capital. After six months, it had improved by € 143 million to € 28 million on the same period the previous year.
As a result, net debt fell year-on-year to € 239 million (same quarter of previous year: € 357 million). Despite further payments for Focus 2012 amounting to € 12 million, debt continued to fall in the quarter under review compared with March 31, 2013 (€ 261 million).
"The measures taken in asset and net working capital management to sustainably cut net debt at Heidelberg as planned are increasingly having an impact," said Heidelberg CFO Dirk Kaliebe. "Our financing structure is on a sound footing in light of our successful issue of a convertible bond and our bond maturing in April 2018."
As planned, the workforce fell to 13,616 as of September 30, 2013 (same quarter of the previous year: 14,745).
Heidelberg and Fujifilm agree strategic partnership in inkjet technology
In October, Heidelberg and Fujifilm, a leading manufacturer and supplier in the field of inkjet and printing plates, agreed a wide-ranging partnership. The collaboration will focus in particular on developing next-generation products for the attractive digital print market and offering pioneering digital print solutions for industrial packaging and commercial printing. It also enables mutual access to the latest technologies that Heidelberg and Fujifilm offer in prepress. "We see strategic collaborations as an efficient and speedy way to gain access to new technologies and growth segments," said Linzbach. "With Fujifilm inkjet technology, we will be expanding our digital business and further optimizing our portfolio. We're looking to use this to offer our customers offset and digital print solutions for a wide range of applications with the usual comprehensive service in the future."
Outlook: Net profit remains target for financial year 2013/2014
The outlook for the 2013 / 2014 financial year and the aim of generating a consolidated net profit remain unchanged. In past quarters, Heidelberg has increasingly geared its strategy towards improving profitability in order to become more independent of general economic conditions. The figures for the first half of 2013 / 2014 show that the company is making good progress in this. Nonetheless, the operating break-even point needs to be adjusted further in order to be better prepared for volatility in individual markets among other things. Heidelberg is therefore using all available tools to make working hours more flexible in addition to the measures forming part of the Focus 2012 efficiency program. Furthermore, we will push for a continued improvement in product-specific profit contributions. As in the first half of the year, this will lead to an increase in the result of operating activities excluding special items in the second six-month period; the figure for the year as a whole will be significantly higher than in the previous year.
In light of the substantial depreciation of certain key foreign currencies, particularly the Japanese yen and the US dollar, we expect currency translation to continue to have a negative impact on sales volumes in the coming months. The reluctance to invest in some markets such as Brazil is likely to persist in the second half of the year. The sales forecast also takes into account possible volume reductions due to the gradual scaling back of low margin business. At present, the overall sales risk amounts to a single-digit percentage compared with the previous year.
The company anticipates additional extraordinary expenses in the current financial year in connection with Focus 2012. The financial result will improve slightly compared with the prior-year figure, which was reported in accordance with IAS 19 (2004). Given the measures initiated and in light of the positive trend already seen in the first two quarters, Heidelberg continues to strive for a consolidated net profit in the 2013 / 2014 financial year.