Heidelberg Reports Incoming Orders Increased in Third Quarter

HEIDELBERG, GERMANY—02/09/2010—In the third quarter of financial year 2009/2010 (October 1 to December 31, 2009), incoming orders and sales at Heidelberger Druckmaschinen AG (Heidelberg) were up on the previous quarters. The savings resulting from the package of cost-cutting measures have helped to significantly reduce the operating loss over the past three months. Due to mixed economic expectations around the globe, however, there is as yet no clear improvement in the level of investment in the print media industry.

• Q3 incoming orders up on previous year at EUR 609 million
• Q3 operating result, excluding special items, of EUR -13 million
• Positive free cash flow of EUR 3 million in Q3

Incoming orders in the third quarter of financial year 2009/2010 amounted to EUR 609 million, 14.7 percent up on the previous quarter's level of EUR 534 million and roughly nine percent higher than the figure for the same quarter the previous year (EUR 560 million). This was the highest level for five quarters. Incoming orders after nine months (April 1 to December 31, 2009) totaled EUR 1.693 billion (previous year: EUR 2.432 billion). A key factor in the previous financial year was the volume of orders resulting from the drupa trade show in May 2008.

"Incoming orders and sales were slightly up in the third quarter," stated Heidelberg CEO Bernhard Schreier. "We achieved some fairly notable business successes, particularly in China and Germany. We have increased our market share with our new large-format presses. There is currently no sign of a significant recovery, though, because generally speaking print shops around the globe are still reluctant to invest," he added.

At EUR 578 million, sales in the third quarter matched the highest level to date for the current financial year. Services accounted for just under 30 percent of this figure. Sales were EUR 79 million higher than the previous quarter's figure of EUR 499 million but 23 percent down on the same quarter the previous year, when they totaled EUR 750 million. They were also 28 percent lower than during the equivalent nine months the previous year, totaling EUR 1.591 billion (previous year: EUR 2.211 billion).

The Heidelberg Group's order backlog at the end of the third quarter improved slightly to EUR 626 million (previous quarter: EUR 617 million).

Much better earnings
At EUR -13 million, the operating result for the third quarter, excluding special items, was much better than the previous quarter's figure of EUR -65 million. This was due in large part to the slight increase in sales and the growing savings resulting from the package of cost-cutting measures. Following agreement on a reconciliation of interests with employee representatives in October 2009, it was possible to reverse parts of the provisions for the cost-cutting program. This resulted in income of EUR 30 million from special items in the third quarter and produced a positive operating result, including special items, of EUR 17 million for this quarter. The cumulative operating result after nine months, excluding special items, was EUR -141 million (previous year, excluding special items: EUR -45 million).

The net result after three quarters was EUR -158 million (previous year: EUR -119 million).

Positive free cash flow
In the period under review, Heidelberg recorded a positive free cash flow of EUR 3 million. After the first three quarters of the current financial year, the total free cash flow is only slightly negative at EUR -15 million; the cash outflow after nine months in the previous financial year was EUR -277 million.

"Business has improved slightly as expected and we have made greater savings. This has resulted in a much better operating result in the third quarter," stated Heidelberg CFO Dirk Kaliebe. "The positive free cash flow has enabled us to ensure the continued stability of the Group's net debt. We will also continue to optimize the cost structure at Heidelberg," he explained.

On February 9, 2005, Heidelberg issued a convertible bond that runs until 2012 but can be paid back early in February 2010. In the third quarter of financial year 2009/2010, a majority of the convertible bond investors exercised their right to accelerated repayment in accordance with the bond conditions. Repayment in the fourth quarter of the current financial year will be largely refinanced using the loan from the KfW (Kreditanstalt für Wiederaufbau), which was granted for this purpose as part of the new financing concept.

The workforce fell again, by 181, in the third quarter of 2009/2010. As of December 31, 2009, the Heidelberg Group thus had a workforce of 18,020 worldwide (previous year 19,548). Since March 31, 2008, staffing levels have been reduced by a total of 2,550. Overall, the company plans to cut around 4,000 jobs worldwide by the end of financial year 2010/2011.

Orders up in Asia and Europe
The situation in the individual regions still varies tremendously. There was significant growth in the Asia/Pacific region - primarily due to growth in the Chinese market. Incoming orders in this region were more than 50 percent higher than during the same period the previous year. A corner also appears to have been turned in the Europe, Middle East and Africa region. In the period under review, incoming orders were higher than the previous quarters and the same period the previous year. In the North America region, though, there is still no sign of improvement in the situation in the print media industry.

Business with large-format presses continued to develop positively in the first nine months of the current financial year. The company has already sold more than 30 large-format presses worldwide since it entered this segment in 2008 and has successfully increased its market share. In the future, these large-format presses will ensure further growth for Heidelberg in the packaging printing segment.

Outlook
Based on the way the current financial year has gone to date, Heidelberg still expects the Group's sales for financial year 2009/2010 as a whole to be significantly below the level recorded in financial year 2008/2009. As a result of the low sales volume, Heidelberg is still predicting an operating result, excluding special items, of between EUR -110 million and EUR -150 million. All the cost-cutting measures planned at Heidelberg are currently being implemented. In addition, the agreements reached to date are giving the company continued flexibility when it comes to adapting personnel costs.

The tables as well as additional information can be found at the Heidelberg Press Lounge at www.heidelberg.com.