Challenging Market Environment Impacts Heidelberg's Q3, Profitability in 2019/2020
In the first nine months (April 1 to Dec. 31, 2019) of financial year 2019/2020, Heidelberger Druckmaschinen AG (Heidelberg) recorded stable development in total sales and incoming orders. However, the persistently difficult market environment led to a decline in sales and operating profit in the third quarter.
At EUR 1,900 million after nine months, order intake was on a par with the previous year (previous year: EUR 1,912 million). At EUR 636 million, incoming orders in the third quarter were up on the previous year's figure of EUR 606 million. Order volumes increased in China and the USA in particular, while business in Germany and other parts of Europe remains weak. At EUR 1,690 million after nine months of the fiscal year, sales were still at the previous year's level (previous year: EUR 1,693 million). However, sales in the third quarter of the current fiscal year were lower than expected at EUR 567 million due to the reluctance to invest in Germany, Great Britain and the rest of Central Europe as a result of the economic situation, and were below the previous year's figure of EUR 579 million.
EBITDA excluding the restructuring result was EUR 47 million in the third quarter (Oct. 1 to Dec. 31, 2019), compared with EUR 39 million in the prior-year quarter. The third quarter of the current fiscal year includes a positive one-time gain of around EUR 25 million from the sale of Hi-Tech Coatings. The lower volume, pressure on margins in the trading business with consumables and regional shifts with a less favorable product mix had a particularly negative impact. At the same time, high upfront investments in the area of digital printing still faced insufficient sales. The cost-cutting measures already initiated were not yet able to compensate for this development.
In the first nine months, EBITDA excluding the restructuring result was EUR 117 million, compared to EUR 101 million in the previous year. Accordingly, the pre-tax result was slightly positive at around EUR 5 million (previous year EUR 1 million), while the result after taxes was slightly negative at EUR –10 million (previous year EUR –2 million). Free cash flow improved after nine months, including the sale of Hi-Tech Coatings, to EUR –73 million (previous year: EUR –120 million).
Sales and operating result forecast for the entire year 2019/2020 adjusted due to increasingly difficult conditions
The development in the third quarter and the expectation of a continued low propensity to invest in key European markets means that even in the traditionally strong fourth quarter of the current financial year, sales and earnings are expected to be down on the previous year, with implications for the annual forecast. The Management Board now expects full-year sales to be slightly below the previous year's level of around EUR 2.490 billion. Until now, the company has assumed a stable sales trend. EBITDA excluding the restructuring result and the one-off income from the sale of Hi-Tech Coatings is expected to be in a range of 5.5 to 6.0 percent of sales (previously 6.5 to 7.0 percent) due to the lower sales expectation, declining trade margins and the unfavorable region and product mix. Earnings after tax will accordingly be slightly negative (previously: balanced after tax).
"The difficult economic environment continued to deteriorate in the third quarter of our financial year. Although we continued to perform well in key regions such as China and the USA, this was not enough to offset the reluctance to invest and the pressure on margins in Germany, the UK and the rest of Central Europe," said Rainer Hundsdörfer, CEO of the company. "In order to adapt Heidelberg to these increasingly difficult market conditions in the long term, we are working at full speed, as announced, to finalize a package of measures to adjust our structures and achieve a sustained increase in profitability. At the same time, we are continuing to consistently implement the measures already initiated to improve the result and free cash flow.”
As announced, Heidelberg is in an advanced stage of developing a comprehensive package of measures to improve profitability over the long term, due to the massive changes taking place throughout the industry. The aim is to streamline the product portfolio, sell non-core businesses as announced, make organizational structures and processes more efficient, optimize the international production network, and significantly reduce the overall cost base. The aim is to focus on customer-centric solutions and to further drive forward the digital transformation. The company will provide comprehensive information as soon as the planning for this package of measures has been completed and the responsible committees have decided on its implementation.
The company will publish the complete interim report for the third quarter 2019/20 on Feb. 11, 2020 as planned.
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.