We believe we have been able to further strengthen our position as the world market leader in sheetfed offset printing. Other than our two principal competitors in the sheetfed offset area, Koenig & Bauer and manroland, most of whose manufacturing facilities are located in Germany, there are a few Japanese competitors, such as Komori, Ryobi, and Mitsubishi. Due to the drastic strengthening of the yen, during the financial year competitive conditions shifted further in favor of European suppliers, who were able to benefit from the market turnaround to a greater extent.
All the large manufacturers substantially reduced their capacities the previous year and adapted to the expected growth. Since the upswing in our industry has been only modest up until now, the competitive pressure was still clearly perceptible during the financial year.
Because we offer the market’s most advanced product platforms, which ensure considerable competitive advantages for print shops, our competitive position was strong. As we had announced, due to our leading technological position we have grown considerably, especially in new printing presses for medium and large formats. We also further strengthened our position in packaging printing.Here we show why our product portfolio satisfies the requirements of various target groups.
Also as expected, we succeeded in additionally expanding our market position in the rapidly growing newly industrializing countries. Our manufacturing in China and our tightly meshed service and sales network contributed to this decisively.
With our gradually increasing sales during the year, profit contributions were up – especially in view of our favorable sales mix. In the Heidelberg Equipment Division, due to the slow turnaround in the industrialized countries, more highly automated printing presses in larger formats, which have higher profit margins than standard printing presses, are being sold again. In the Heidelberg Services Division, demand further strengthened for coatings and specialized inks. The share of sales of remarketed equipment declined, whereas at the same time prices of this equipment increased again.
We were able to largely compensate for higher costs in individual areas, and beginning in the third quarter of the financial year to surpass the operational breakeven point with the positive quarterly result – and to book a positive result of operating activities excluding special items for the year as a whole. The sustained reduction in our fixed costs was a major factor contributing to this development, by means of which we lowered Heidelberg’s operating break-even point, adjusted for exchange rate effects, to approximately € 2.5 billion. We succeeded in this among others with our heidelberg 2010 program, with which we reduced costs by € 400 million annually, and for another, through boosts in efficiency resulting from the ReorganiZation during the financial year, which generated further cost reductions of € 60 million. The cost reduction measures from the reorganization will only become fully effective in the following year and will amount to € 480 million annually compared with the base year 2008. Income from special items slightly exceeded expenses during the financial year, with income of € 2 million generated as a result.
As we announced, the financial result of € - 149 million dropped further below the previous year’s figure of € - 127 million. This was caused by both the considerable financing costs as well as non-recurring expenditures from the repayment of financial liabilities and from the restructuring of the funding. We were able to take countermeasures against this development by means of the capital increase as well as the premature repayment of financial liabilities. Our current interest payments declined noticeably during the second half-year – we had assumed in our planning that we would depend on the Government credits for a longer period.
Because income before taxes continued to be substantially burdened by the financial result, as we had already forecast the previous year we suffered a marked net loss totaling € - 129 million.
Our free cash flow developed much better than had been expected, reaching € 75 million during the financial year despite high restructuring expenditures, and thereby surpassing the previous year’s figure by € 137 million. Contributing to this development were on the one hand the substantially reduced net loss, and on the other hand the successes realized from our Net Working Capital Project. Furthermore, the volume of receivables from sales financing declined. In order to keep the cash outflow low, we also only moderately increased investments. We thereby succeeded in considerably reducing the commitment of funds.
The successful refinancing enabled us to considerably reduce financial liabilities, which fell from € 816 million the previous year to € 395 million at the end of the reporting period. The stable capital structure is especially noticeable when looked at from the point of view of the debt ratio. After rising from 34 percent in the pre-crisis years to 120 percent the previous year, we were able to bring it down under its pre-crisis level to 28 percent as of the end of the reporting year.