Heidelberg restructures to focus on core business, halts Primefire and large-format presses

The board of digital printer maker Heidelberger Druckmaschinen AG  adopted a wide-range action plan for short-term structural cost reduction 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.

The key points of the plan:

• Closure of unprofitable businesses as well as sharp cuts in production costs and structural costs – production of “Primefire” and “very-large-format printing” will be stopped
• Action package includes a global reduction in force by up to 2,000 jobs
• Non-recurring expenses of approximately €300 million impact FY 2019/20 earnings
• Return transfer of around €375 million in liquidity from trust fund secures the financing and significantly increases financial stability
• Net debt to be almost completely eliminated; high-yield bond to be repurchased
• Focus on technology leadership in core business

“Heidelberg’s realignment is a radical step for our company that also involves some painful changes,” says Rainer Hundsdörfer, CEO, Heidelberg. “As hard as it was for us to make this decision, it is necessary 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.”

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. 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.”

“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, CEO, Heidelberg Pension-Trust e.V.

Action package to increase profitability

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 product range has been falling well short of sales targets because of a fundamental change in the market structure for this subsequent, the company said. To improve overall profitability as soon as possible, production in both businesses is to be discontinued by the end of 2020. The aim is to focus Heidelberg consistently on profitable activities to secure strong operational performance and profitability under its own power, also when times are difficult.

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. 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 COVID-19 pandemic will negatively impact sales and earnings in the current financial year more severely than so far anticipated., the company said. 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.

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.