Annual Press Conference - Statement Bernhard Schreier
06/13/2007
Statement by Bernhard Schreier, Chief Executive Officer of
Heidelberger Druckmaschinen AG, for the Annual Press Conference on
June 13, 2007
The spoken word applies
Welcoming address
Highlights of financial year 2006/2007
Ladies and Gentlemen
The 2006/2007 financial year that has just closed was a good one in terms of economic development, the industry's growth and the results recorded by Heidelberg.
There was a further increase in capacity utilization at print shops in the industrialized nations and I am happy to report that the growth trajectory has continued in the U.S. and in Germany too. The demand for print products is also still rising rapidly in threshold countries.
These developments are reflected in this year's figures.
The financial year just ended proves that we are still the market leader for sheetfed offset presses. We have even extended this lead in some areas.
We have made progress in all sectors of relevance to the company, unveiling additional technological innovations, cutting costs, improving stock and asset management and increasing our sales and profits.
The market development confirms we were spot on with our strategic decision three years ago to offer customer-focused solutions and products that provide added value for sheetfed offset presses.
The general economic and market conditions are currently continuing in a positive vein. We have also initiated forward-looking projects and are pressing ahead with these with a view to unveiling these at drupa in Düsseldorf at the end of May 2008.
General economic and market conditions
Ladies and Gentlemen
Sales in our industry depend directly on how willing our customers - print service providers - are to invest. This in turn depends primarily on current and predicted economic growth, and the situation is still looking very rosy in this respect.
We are expecting the global economy's high growth rates to continue in the 2007 calendar year. Financial institutions and banks are forecasting growth of around five percent in 2007.
This positive economic situation will help revive our customers' business. We predict continued growth in the global economy in the medium term and, as a result, further moderate growth in print volumes.
Annual print volumes will climb at an above-average rate in threshold countries. One reason for this is that the saturation level for print products is still very low in these rapidly growing national economies.
The Chinese and Indian printing industries in particular will significantly increase their share of global production, with growth rates of over eight percent. Print shop capacity in these markets will need to increase and many new print shops will continue to emerge over the coming years, especially in Asia.
The basic restoration of import duty exemption in China from March 1, 2007 also suggests that the order and supply situation for the Chinese market will gradually return to normal in the current 2007/2008 financial year.
In industrialized nations, the need for rationalization - which will become more pressing due to higher prices for paper and energy and increased personnel costs - will result in print shops making replacement investments.
In Germany and the U.S. in particular, the print media industry will make investments to safeguard its competitiveness. This trend is also in evidence in the new financial year. Future readiness to invest will help keep the industry's capacity utilization stable at its current high level.
Business models will, however, need to be regularly adapted to new market requirements resulting primarily from burgeoning digitization, increasing concentration and growing internationalization.
Ladies and Gentlemen
We still need to keep a close eye on exchange rate developments. Over the past five years, the value of the Euro has increased by 50 percent relative to the U.S. dollar and by 35 percent relative to the Japanese yen, a trend which looks unlikely to change in the 2007 calendar year. Despite this, we have been able to further consolidate our market position in the sheetfed offset printing and postpress sectors in all regions.
Strategic activities
Ladies and Gentlemen
In financial year 2006/2007, the Heidelberg Group once again made good progress in terms of innovations, efficiency, processes and investments in the future.
Innovations:
In the year under review, we invested around six percent of sales in research and development work on new presses and systems, software development and the technical development of our product portfolio. One indication of our achievements in this area is the number of patents applied for. In 2006/2007, we matched the high level from previous years with patent applications for 153 new inventions - primarily in the press and postpress sectors. As at March 31, 2007, Heidelberg had a total of 5,200 pending or existing patents worldwide - more than any of our industry competitors.
We aim to turn many of our ideas into customer-focused products. At the start of the financial year just closed, we demonstrated our market lead as a solutions provider at the Ipex trade fair held in the U.K. in April 2006, where we showcased over 20 prepress, press and postpress innovations. The main focus of these innovations was increasing our customers' productivity.
One particular innovation I would like to make special mention of is the Anicolor zoneless inking unit. This unit allows offset printshops to produce the shortest of runs with much better profit margins. Anicolor cuts the level of startup waste by as much as 90 percent and the extremely short setup times increase capacity by up to 50 percent for short runs.
Our peak performance press, the Speedmaster XL 105, achieves performance levels 30 percent higher than comparative models, in some cases even more. An order volume in excess of 400 million Euro for this model is a good indication of the market's positive response to the new press.
Our objective in introducing new larger-format presses is to make more of an impact on the packaging printing market. At the industry trade fair, drupa 2008 in Düsseldorf, we will be unveiling a new generation of presses with the Speedmaster XL 145 and XL 162. The initial proofs from these presses were produced on schedule in December 2006 and the quality was very promising. Extensive market testing has revealed that a three centimeter wider press - i.e. 145 instead of 142 centimeters - allows far higher reserves in terms of productivity and flexibility. That is why we are taking the Speedmaster XL 145 and XL 162 to drupa. We are also developing a platesetter for this larger format to give us a further boost in the packaging printing market. Our products will feature a whole host of innovative solutions that will enable us to provide an excellent service to the fastest growing sector in sheetfed offset printing. All these innovations will give us a real competitive edge for the future.
Efficiency and processes:
Ladies and Gentlemen
One of our key objectives is to protect the Heidelberg Group's business even more effectively against the effects of future economic downturns.
With this in mind, we are cutting our production costs. This has been made possible thanks not least to the agreement on safeguarding our future recently being extended to 2012. This agreement essentially covered revisions to the arrangements on extended working hours and job security and the introduction of the collective agreement on pay grades.
As demonstrated by the large number of Heidelberg installations in operation across the globe, we are also continuing to focus on regional distribution and the further expansion of areas of business that the economic situation has relatively little bearing on. We are committed to increasing sales for packaging printing and our 3S - service, spare parts and supplies - business. In concrete terms, the aim in the medium term is to generate around one quarter of total sales from 3S products and services. Technologically speaking, we are ideally placed to achieve this goal. Heidelberg is a world leader in the development and utilization of remote service technologies for the remote maintenance of software solutions and machinery.
We are also seeing tangible signs of progress following the introduction of our Heidelberg Production System. This has led to an increase in productivity at our sites of around five percent - equivalent to tens of millions of Euro a year.
Investments:
Ladies and Gentlemen
With our eyes firmly set on customer benefits, we are investing above all in staff training, new products and our sites.
Helped by a healthy order backlog and incoming order situation, we are currently enjoying a high level of capacity utilization. In the previous financial year, this resulted in us taking on 580 new staff, primarily for our production operations in Germany. The other new arrivals were a result of initial consolidations.
Any further recruitment will depend on economic developments, but it cannot be ruled out and we are continuing to take on selected members of staff.
The new technologies and products referred to above also require investment in extended or new production capacities at our sites.
In September this year, we will be marking the 50th anniversary of the Wiesloch-Walldorf site with the official opening of the 35,000-square-meter Hall 11 for our new extra large presses. Production and assembly operations will then start straight away in preparation for the official presentation of the presses in Düsseldorf at the end of May 2008.
This summer will see the completion of a second assembly hall at our Qingpu site in China. The additional area of around 11,000 square meters will triple our local capacity to roughly 16,000 square meters.
The conclusion following over a year of production in China is that the startup has been a success. We are happy with the quality of the products being manufactured at this site, as is the Chinese market. In the financial year just ended, we roughly tripled sales of folders specially assembled for the local market, selling over 100 machines.
The first small-format presses are now rolling off the assembly line and preparations are under way for assembling a press the next size up for the Chinese market.
Ladies and Gentlemen
As things stand at present, the external economic conditions and our planned progress in terms of products, costs and the market provide a sound basis for financial year 2007/2008.
Prospects for financial year 2007/2008
Ladies and Gentlemen
Now for our prospects, which we have readjusted.
Over the next three-year period, from 2007/2008 to 2009/2010, we are expecting the Heidelberg Group's total sales to increase by ten to 15 percent. In the current financial year 2007/2008, we predict moderate growth in the run-up to drupa 2008.
In 2006/2007, the year under review, the operating result included positive non-recurring items amounting to around 60 million Euro. In the current financial year 2007/2008, Heidelberg is looking to increase the purely operational part of this result by ten to 15 percent compared to the adjusted figure for the year under review of 302 million Euro. This represents a target operating result for 2007/2008 of 330 to 345 million Euro.
Benefiting from the positive effects of the German tax reform and from internal optimizations to ease the tax burden, the net profit will continue to grow. Overall, we predict an increase in this profit - excluding non-recurring items - of around four percent of sales for the year under review to about five percent in the current financial year 2007/2008.
As always, we are keen for our shareholders to share in the company's success and increase in value with a healthy rise in share dividends.
Ladies and Gentlemen
As demonstrated by these key figures, Heidelberg has maintained and extended its lead in the print industry.
Thanks to the order backlog and the demand for our innovative products, we are entering the new financial year 2007/2008 full of confidence.
In the coming 12 months, we will be working hard towards the drupa trade fair in May 2008 so that Heidelberg can once again offer its customers new solutions for greater innovation and productivity.
My colleague Dirk Kaliebe will now discuss the results for financial year 2006/2007 in detail.
Thank you very much for your time.
The spoken word applies
Welcoming address
Highlights of financial year 2006/2007
Ladies and Gentlemen
The 2006/2007 financial year that has just closed was a good one in terms of economic development, the industry's growth and the results recorded by Heidelberg.
There was a further increase in capacity utilization at print shops in the industrialized nations and I am happy to report that the growth trajectory has continued in the U.S. and in Germany too. The demand for print products is also still rising rapidly in threshold countries.
These developments are reflected in this year's figures.
- For the fourth year in succession, our innovative solutions and products that are geared to market needs have enabled us to take advantage of the upturn in the world economy and the industry's growth trend.
- Despite unfavorable exchange rate developments, we have achieved our ambitious targets and even exceeded them in some areas.
- Our order volume has kept on growing for over three successive business periods. At 3.853 billion Euro for the period under review, it was roughly seven percent up on the previous year. This also augurs well for the new financial year that began on April 1, 2007.
- Overall, sales climbed by six percent to 3.803 billion Euro. We were up on the previous year's figures in every single quarter of the financial year just closed. The fourth quarter alone returned sales in excess of 1.2 billion Euro, the highest level in the past five years on a like for like basis.
- Buoyed by the high sales volume, the order reserve at March 31, 2007 exceeded three months, thereby ensuring good capacity utilization for the first six months of the current financial year.
- In the period under review, we generated an operating profit - including non-recurring items - of 362 million Euro. This is equivalent to 9.5 percent of sales - an excellent result for a mechanical engineering company and close to our target of ten percent.
- We saw a significant improvement in our net profit - including non-recurring tax items - to a level of 263 million Euro. This led to a further increase in our earnings and the value of the Heidelberg Group in terms of capital employed.
- Heidelberg shareholders will benefit from the further growth in earnings. The Management Board and Supervisory Board will propose to the Annual General Meeting on July 26 that a dividend of 0.95 Euro per share be paid for financial year 2006/2007, up from 0.65 Euro the previous year.
The financial year just ended proves that we are still the market leader for sheetfed offset presses. We have even extended this lead in some areas.
We have made progress in all sectors of relevance to the company, unveiling additional technological innovations, cutting costs, improving stock and asset management and increasing our sales and profits.
The market development confirms we were spot on with our strategic decision three years ago to offer customer-focused solutions and products that provide added value for sheetfed offset presses.
The general economic and market conditions are currently continuing in a positive vein. We have also initiated forward-looking projects and are pressing ahead with these with a view to unveiling these at drupa in Düsseldorf at the end of May 2008.
General economic and market conditions
Ladies and Gentlemen
Sales in our industry depend directly on how willing our customers - print service providers - are to invest. This in turn depends primarily on current and predicted economic growth, and the situation is still looking very rosy in this respect.
We are expecting the global economy's high growth rates to continue in the 2007 calendar year. Financial institutions and banks are forecasting growth of around five percent in 2007.
This positive economic situation will help revive our customers' business. We predict continued growth in the global economy in the medium term and, as a result, further moderate growth in print volumes.
Annual print volumes will climb at an above-average rate in threshold countries. One reason for this is that the saturation level for print products is still very low in these rapidly growing national economies.
The Chinese and Indian printing industries in particular will significantly increase their share of global production, with growth rates of over eight percent. Print shop capacity in these markets will need to increase and many new print shops will continue to emerge over the coming years, especially in Asia.
The basic restoration of import duty exemption in China from March 1, 2007 also suggests that the order and supply situation for the Chinese market will gradually return to normal in the current 2007/2008 financial year.
In industrialized nations, the need for rationalization - which will become more pressing due to higher prices for paper and energy and increased personnel costs - will result in print shops making replacement investments.
In Germany and the U.S. in particular, the print media industry will make investments to safeguard its competitiveness. This trend is also in evidence in the new financial year. Future readiness to invest will help keep the industry's capacity utilization stable at its current high level.
Business models will, however, need to be regularly adapted to new market requirements resulting primarily from burgeoning digitization, increasing concentration and growing internationalization.
Ladies and Gentlemen
We still need to keep a close eye on exchange rate developments. Over the past five years, the value of the Euro has increased by 50 percent relative to the U.S. dollar and by 35 percent relative to the Japanese yen, a trend which looks unlikely to change in the 2007 calendar year. Despite this, we have been able to further consolidate our market position in the sheetfed offset printing and postpress sectors in all regions.
Strategic activities
Ladies and Gentlemen
In financial year 2006/2007, the Heidelberg Group once again made good progress in terms of innovations, efficiency, processes and investments in the future.
Innovations:
In the year under review, we invested around six percent of sales in research and development work on new presses and systems, software development and the technical development of our product portfolio. One indication of our achievements in this area is the number of patents applied for. In 2006/2007, we matched the high level from previous years with patent applications for 153 new inventions - primarily in the press and postpress sectors. As at March 31, 2007, Heidelberg had a total of 5,200 pending or existing patents worldwide - more than any of our industry competitors.
We aim to turn many of our ideas into customer-focused products. At the start of the financial year just closed, we demonstrated our market lead as a solutions provider at the Ipex trade fair held in the U.K. in April 2006, where we showcased over 20 prepress, press and postpress innovations. The main focus of these innovations was increasing our customers' productivity.
One particular innovation I would like to make special mention of is the Anicolor zoneless inking unit. This unit allows offset printshops to produce the shortest of runs with much better profit margins. Anicolor cuts the level of startup waste by as much as 90 percent and the extremely short setup times increase capacity by up to 50 percent for short runs.
Our peak performance press, the Speedmaster XL 105, achieves performance levels 30 percent higher than comparative models, in some cases even more. An order volume in excess of 400 million Euro for this model is a good indication of the market's positive response to the new press.
Our objective in introducing new larger-format presses is to make more of an impact on the packaging printing market. At the industry trade fair, drupa 2008 in Düsseldorf, we will be unveiling a new generation of presses with the Speedmaster XL 145 and XL 162. The initial proofs from these presses were produced on schedule in December 2006 and the quality was very promising. Extensive market testing has revealed that a three centimeter wider press - i.e. 145 instead of 142 centimeters - allows far higher reserves in terms of productivity and flexibility. That is why we are taking the Speedmaster XL 145 and XL 162 to drupa. We are also developing a platesetter for this larger format to give us a further boost in the packaging printing market. Our products will feature a whole host of innovative solutions that will enable us to provide an excellent service to the fastest growing sector in sheetfed offset printing. All these innovations will give us a real competitive edge for the future.
Efficiency and processes:
Ladies and Gentlemen
One of our key objectives is to protect the Heidelberg Group's business even more effectively against the effects of future economic downturns.
With this in mind, we are cutting our production costs. This has been made possible thanks not least to the agreement on safeguarding our future recently being extended to 2012. This agreement essentially covered revisions to the arrangements on extended working hours and job security and the introduction of the collective agreement on pay grades.
As demonstrated by the large number of Heidelberg installations in operation across the globe, we are also continuing to focus on regional distribution and the further expansion of areas of business that the economic situation has relatively little bearing on. We are committed to increasing sales for packaging printing and our 3S - service, spare parts and supplies - business. In concrete terms, the aim in the medium term is to generate around one quarter of total sales from 3S products and services. Technologically speaking, we are ideally placed to achieve this goal. Heidelberg is a world leader in the development and utilization of remote service technologies for the remote maintenance of software solutions and machinery.
We are also seeing tangible signs of progress following the introduction of our Heidelberg Production System. This has led to an increase in productivity at our sites of around five percent - equivalent to tens of millions of Euro a year.
Investments:
Ladies and Gentlemen
With our eyes firmly set on customer benefits, we are investing above all in staff training, new products and our sites.
Helped by a healthy order backlog and incoming order situation, we are currently enjoying a high level of capacity utilization. In the previous financial year, this resulted in us taking on 580 new staff, primarily for our production operations in Germany. The other new arrivals were a result of initial consolidations.
Any further recruitment will depend on economic developments, but it cannot be ruled out and we are continuing to take on selected members of staff.
The new technologies and products referred to above also require investment in extended or new production capacities at our sites.
In September this year, we will be marking the 50th anniversary of the Wiesloch-Walldorf site with the official opening of the 35,000-square-meter Hall 11 for our new extra large presses. Production and assembly operations will then start straight away in preparation for the official presentation of the presses in Düsseldorf at the end of May 2008.
This summer will see the completion of a second assembly hall at our Qingpu site in China. The additional area of around 11,000 square meters will triple our local capacity to roughly 16,000 square meters.
The conclusion following over a year of production in China is that the startup has been a success. We are happy with the quality of the products being manufactured at this site, as is the Chinese market. In the financial year just ended, we roughly tripled sales of folders specially assembled for the local market, selling over 100 machines.
The first small-format presses are now rolling off the assembly line and preparations are under way for assembling a press the next size up for the Chinese market.
Ladies and Gentlemen
As things stand at present, the external economic conditions and our planned progress in terms of products, costs and the market provide a sound basis for financial year 2007/2008.
Prospects for financial year 2007/2008
Ladies and Gentlemen
Now for our prospects, which we have readjusted.
Over the next three-year period, from 2007/2008 to 2009/2010, we are expecting the Heidelberg Group's total sales to increase by ten to 15 percent. In the current financial year 2007/2008, we predict moderate growth in the run-up to drupa 2008.
In 2006/2007, the year under review, the operating result included positive non-recurring items amounting to around 60 million Euro. In the current financial year 2007/2008, Heidelberg is looking to increase the purely operational part of this result by ten to 15 percent compared to the adjusted figure for the year under review of 302 million Euro. This represents a target operating result for 2007/2008 of 330 to 345 million Euro.
Benefiting from the positive effects of the German tax reform and from internal optimizations to ease the tax burden, the net profit will continue to grow. Overall, we predict an increase in this profit - excluding non-recurring items - of around four percent of sales for the year under review to about five percent in the current financial year 2007/2008.
As always, we are keen for our shareholders to share in the company's success and increase in value with a healthy rise in share dividends.
Ladies and Gentlemen
As demonstrated by these key figures, Heidelberg has maintained and extended its lead in the print industry.
Thanks to the order backlog and the demand for our innovative products, we are entering the new financial year 2007/2008 full of confidence.
In the coming 12 months, we will be working hard towards the drupa trade fair in May 2008 so that Heidelberg can once again offer its customers new solutions for greater innovation and productivity.
My colleague Dirk Kaliebe will now discuss the results for financial year 2006/2007 in detail.
Thank you very much for your time.
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