Statement by Bernhard Schreier, Chief Executive Officer of
Heidelberger Druckmaschinen AG, on the occasion of the Annual
Analysts Conference on June 8, 2004
The spoken word applies
Words of welcome
Ladies and Gentlemen,
The 2003/2004 fiscal year of Heidelberg Druckmaschinen AG
from April 1, 2003 to March 31, 2004 marks a change in fortunes and
also has historical significance for the company:
- Due to the industry's weak economy, especially at the start
of 2003, we again recorded a decrease in sales, even if this was
- We have reacted consistently and rapidly to the changed
market conditions, introducing and completing what must be the
most comprehensive realignment of the Heidelberg Group in the
last ten years.
We are focussing on the sheetfed offset sector and the
associated processes and services.
- We have revised and renewed our complete product and
solutions offering in these areas and showcased them successfully
at drupa in Dusseldorf in May 2004.
- We have more or less completed our planned program of global
job reductions, and by reducing fixed costs have reached a cost
level which will gradually return us to a more fitting level of
- The measures we have initiated have laid the groundwork for
strengthening the capital markets' confidence in Heidelberg.
During drupa, RWE sold its share in Heidelberg on the capital
market. The increase in Heidelberg's free float to around 57
percent was the visible result of this.
Heidelberg's goals for the next 24 months remain to
- Maintain and increase market share
- Continue to consistently reduce costs
- Build its leadership in innovation
- Improve earning power.
Ladies and Gentlemen,
While Heidelberg has some turbulent times behind it, it feels
well equipped for the future.
The question now is, how do we assess the environment that
will have a significant influence on our future business? Will the
forecasts prove correct? Is the economic upturn on the way? Are our
customers' advertising budgets rising? Are printers more confident
about the market? Will investment continue to rise?
General economic expectations - the world economy will continue
Globally, we expect an improvement in the economic climate
and the economic situation this year. Opinion-forming international
institutes believe that the global economic upturn will continue
throughout the current year. A total growth of four to five percent
is being forecast.
The economic revival in the USA will continue. While growth
expectations here lie at around 4.6 percent, they are however
In the course of the current year, we expect the economic
upturn to reach Europe, which has up to now lagged behind. However,
growth rates will remain modest. We expect total growth of 2.1
percent. Germany will lie below this level, while the United
Kingdom and France should perform somewhat better. Eastern Europe
will continue to grow at an almost unchanged rate.
Asia will also continue to display above-average growth in
the current year. China in particular will contribute to a
predicted growth of 9.6 percent.
Effects on our industry - the first positive indications
After three years when investment activity has been extremely
slow and a phase of consolidation in our industry, we feel that
more favorable conditions are set to lift the demand for printing
solutions from its current modest level.
Green shoots are clearly perceptible, with a friendlier
business climate in the printing industry of important industrial
countries such as the USA and Germany being felt as early as the
start of the past fiscal year. Printshop capacity utilization in
these countries is increasing slowly despite unsatisfactory pricing
The business climate among German printshops improved in the
first quarter of the 2004 calendar year. Even if a few ups and
downs are felt from month to month, the trend is definitely more up
than down. An increase in purchasing of printed materials is also
In the USA, the volume of printed materials has grown by
almost 4 percent since the start of 2004 - the first rise since the
In threshold countries with their highly dynamic markets, new
printshops are being established. We can therefore see a continued
strong demand for printed materials in Asia and Eastern Europe from
which our industry will continue to benefit. We would like to
achieve around ten percent annual growth in China, for example.
In summary, the conditions for the print media industry are
getting better. We believe that our industry has reached a turning
point. We have come through the worst.
Things seem to be slowly improving, and will probably
stabilize an the second half of 2004.
For the printing press industry and for Heidelberg, however,
an improvement in the market can only be considered sustainable
after two to three quarters of uninterrupted growth. All this is
still to come, however.
Before we discuss the future any further I would like to look
briefly at the most significant developments and key facts and
figures from the last fiscal year. Dr. Meyer will later go on to
explain the Annual Financial Statements for 2003/2004 in more
Heidelberg business performance 2003/2004 - revival after a weak
If 2002/2003 was a difficult year, then the past fiscal year
2003/2004 was a very difficult one.
Business performance in 2003/2004 was above all changeable.
The second half of the year was significantly better than the first
half in terms of sales and incoming orders.
Sales were Euro 5 billion in 2001/2002, 4.1 billion in
2002/2003 and Euro 3.6 billion in 2003/2004. A drop of around 30
percent in three years. With a drop in sales of 11 percent compared
to the previous year we performed as expected.
These key facts and figures alone show what drastic times the
industry, and with it Heidelberg, has experienced.
Incoming orders were pleasing towards the end of the fiscal
year, and have found a relatively good level. Orders for the fourth
quarter totaled around Euro 1 billion and will contribute to
stabilizing future sales.
Our cost-cutting measures are having results, as is shown by
the job reduction program and the reduction in infrastructure
The goal of cutting staff levels by a total of 3,200 between
March 2002 and the end of March 2004 has been attained. Euro 240
million of the Euro 280 million planned cost savings had been
secured by March 31, 2004.
As regards the operating result, we have done slightly better
than our forecasts, achieving a profit of Euro 20 million. We
remain profitable in our core business areas in particular.
As part of our realignment, we have taken measures to slim
The agreement with Eastman Kodak Co. which we reached at the
beginning of March to sell our Digital operations came into force
on May 1, 2004.
The agreement with Goss International regarding the transfer
of the Web Systems operations is ready for signing and will
thereafter come into effect - subject to approval by the various
national antitrust authorities - in the next few weeks.
The transaction with Goss includes Heidelberg's commercial
web and newspaper press operations as well as finishing equipment
for rotary presses in the USA. Heidelberg will have a 15 percent
holding in Goss International.
With this agreement, we have taken an active and important
step toward consolidating the industry in this market segment.
Customers' reactions to this realignment were thoroughly positive
All these measures led to high non-recurring costs totaling
Euro 569 million in the past fiscal year, but they will ensure
that, from the start of the current fiscal year, the Group's
earning power will be boosted by the realignment.
Ladies and Gentlemen,
Heidelberg's dividends reflect the company's results
and in the past we have usually been able to pay a substantial
dividend to our shareholders.
Because of the loss, the Management Board and Supervisory
Board will propose at the Annual General Meeting on July 21, 2004
that no dividend be paid for the year under review.
Our goal is to use the realignment and all the means
available to us to gradually return the Heidelberg Group to its
former earning power, in order to achieve attractive returns for
our shareholders in the future.
Outlook for the current fiscal year 2004/2005 - result will be
Ladies and Gentlemen,
Fiscal year 2003/2004 is now behind us.
Are we out of the woods?
It seems so.
In the current fiscal year 2004/2005 we believe that the
improved economic conditions will have a perceptible effect on our
In the current year, we are aiming for an increase in sales
of at least 5 percent over the previous year on a comparable basis,
i.e. without the divested Digital and Web Systems operations.
Since we are positioned close to customers in the regions
with high growth, we expect to reap greater rewards from the
dynamic threshold countries than our competitors.
Our market share in these regions will continue to grow.
We have consistently and significantly cut the fixed costs of
the Heidelberg Group - and this is something we will profit from
substantially in the current fiscal year. We are now able to
respond more flexibly to fluctuations in incoming orders and thus
have the potential to improve our operating result. Our break-even
threshold is far lower than before.
However, the current quarter and current fiscal year will be
impacted by the costs of drupa and the cost of introducing numerous
new products onto the market.
Nevertheless, we anticipate that the net result for the
fiscal year as a whole will be a considerable improvement on the
previous year. This will be achieved by improvements in sales, but
also and in particular by the deconsolidation of the loss-making
Digital and Web Systems Divisions and by reduced structural costs
throughout the Heidelberg Group.
Our goal is to achieve an operational return on sales of
between 4 and 5 percent for the current fiscal year without the
Digital and Web Systems Divisions.
All in all, we expect to achieve an annual profit of at least
the mid tens of millions of Euros.
Continued commitment to research and development
Investments in research and development in fiscal year
2004/05 will continue at a comparably high level, with around 6
percent of revenue being earmarked for R&D.
We will further raise the efficiency and productivity of our
research and development work through improved management of
product life cycles.
We will continue to gear our solutions even more precisely to
the customer's individual needs. Our modular concept gives us a
distinct advantage in this regard.
Our customers are now firmly focused on improvements in
workflow, not least since drupa 2004. We will be delivering further
workflow optimizations, particularly in prepress. Our solutions can
bring customers improvements in net productivity of up to 30
percent, this being translated in turn into higher returns.
New strategy beginning to bite
How does Heidelberg plan to achieve its goals for sales and
All the measures deriving from our product and investment
policies will contribute to improving Heidelberg's corporate
value over the long term. Over the past fiscal year, we have
adapted our strategy to the changing needs of the print media
markets. As the world market leader in this sector, we are a
committed partner to the print media industry.
We are concentrating our efforts on sheetfed offset, a sector
in which our products lead the way worldwide, and are strengthening
our portfolios in the packaging and label printing sectors.
Sheetfed offset from Heidelberg covers the entire process chain
from prepress to press and postpress, complete with workflow and
full customer service. On this market, our global sales
organization is also very competitive and can offer our customers a
broad, integrated portfolio of solutions for increasing net
productivity over a whole range of market segments.
The Heidelberg Group is no longer structured on a divisional
basis, but rather based on functional criteria and is therefore
more streamlined than ever before. We can now boast an integrated,
We will continue to build upon our strategic competitive
Customers know us as a supplier of solutions that are
tailored precisely to the needs of the print media industry. We
will remain fully committed to this approach.
We already have the world's best and densest service and
sales network in the industry. We are reinforcing our presence in
regions with emerging markets that promise to deliver high growth
in the print sector.
Our integrated solutions strategy is something that sets us
apart from our competitors.
Our new high-end sheetfed offset press, the Speedmaster XL
105, will enable us to tap into new markets. Its larger format is
geared specifically to the needs of the high-growth, highly
industrial packaging printing sector. We can also offer innovative,
attractive and integrated finishing solutions for this market.
Over the current fiscal year, we will be redoubling our
efforts in development, production and sales for the packaging
drupa reaffirms our strategy
Our customer surveys at drupa have also helped ensure that
our new strategy is perfectly tailored to users' requirements. Our
customers have responded with interest to the new Heidelberg
concept, with orders being higher than expected, and have therefore
given their approval to the new strategy we have adopted.
All in all, we had already received around Euro 1 billion of
orders by the time drupa had closed its doors and were therefore
optimistic as we started the new fiscal year.
This high level of incoming orders has had a positive effect
on our capacity utilization.
For the first time for almost three years, we have returned
to a standard 35 hour week at all our German sites. In other words,
there is no longer any need at any of our sites for short-time
working or reductions in working time as set out in the collective
wage agreement for safeguarding jobs.
At a number of sites, we will endeavor to compensate any
peaks in capacity utilization through our new flexibility model
recently agreed with employee representatives.
A few new employees will be taken on at the Ludwigsburg and
The trainees taken on for a limited period of six months at
the Wiesloch and Heidelberg sites will be offered employment for a
further twelve months, at which point a decision will be made as to
whether it would be economically viable to extend their contracts
The employee share options program in Germany has been
adopted again for the current fiscal year.
Ladies and Gentlemen,
Our customers recognize that we have continued investing in
their future over recent fiscal years.
In the past fiscal year in particular, and despite the
economic downturn, our high investments in new products and
technologies have led the way on the market.
At drupa 2004, Heidelberg exhibited around 30% more
innovations than in the boom year of 2000.
We provided our 240,000 sheetfed customers with more
technical and product innovations than ever before in our
We presented 50 innovations in our core sectors of prepress,
offset and finishing as well as the associated services and
As at Heidelberg, the trade show focused not least on
workflows. The Prinect workflow system from Heidelberg provides the
platform for "networked" printshops and, when used in
conjunction with the new products, offers customers potential
savings of around 30 percent.
Allow me finally to look back and make a few comments about
our new strategic direction. What may at first glance look like a
"U-turn" is for us - and therefore for our customers too
- a clear, logical and reliable step towards a sound future.
I was recently looking through Heidelberg's drupa
archives and came across the entry for 1995 when we were the
sheetfed offset company. This is something that we have naturally
remained. But there's one significant difference - not only are
we now able to coordinate processes along the whole length of the
sheetfed value-added chain, we can also network and optimize them.
This sets us apart from our competitors. A fact that we
demonstrated in practical terms to our customers at drupa.
Thank you very much for your attention.
I would now like to hand over to my colleague Dr. Herbert
Meyer, who will present the Balance Sheet and the Profit and Loss
Account for fiscal year 2003/2004 in detail.