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Future Prospects - Challenges Posed by Underlying Conditions |
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- Global Economy: Modest Economic Slowdown as a Result of the Financial Markets Crisis
- Focus on Services, Consumables and Packaging Printing
- Exchange Rate Structures Hampering European Suppliers
Global Economy: Forecasts Uncertain
Broadly, economic research institutes believe that the global economy will be struggling with the consequences of the financial markets crisis at least through mid-year, if not up to 2009. Moreover, a recession in the US is becoming ever more likely. Such a development should hardly have the impact on the overall economic situation that it would have had a few years ago. In general, however, the possible consequences for the European and world economic situation are uncertain. The extent to which the - due to the exchange rate structures - very tough global competition will affect the European economies is also unclear. Although the upswing, with its export impetus, seems to have remained largely intact, nearly all experts are in agreement that the global economy has passed its peak.
Competitive Conditions Still Depend on Exchange Rates
The development of the exchange rate structures in recent years secured considerable advantages for our Japanese competitors. Overall, competitive pressures within the industry strengthened to such an extent that European suppliers have seen their scope to take action on prices considerably limited. It is widely assumed that the dollar and yen will remain weak into 2008. However, the precise course of developments cannot be foreseen at present.
Planning Premises: Difficulty Assessing Short-Term Trend of Sales
We consider the current developments in our branch of industry in the industrialized countries and particularly in the US to be difficult. Whereas in the US a decline in the sales of equipment seems to be unavoidable, the emerging markets, in particular in Asia, show potential for growth. Overall, demand will be higher especially for our new products - for example, the Speedmaster XL105 with perfecting device as well as the new generation of printing presses in the large format category. We are not in a position to make a reliable sales forecast for financial year 2008/2009 at the present time.
Result of the Current Financial Year Heavily Burdened by Several Factors
There are some factors that will considerably burden the result during the current financial year, including non-recurring expenditures for our presence at the drupa trade show as well as the startup of series production of new products. The more unfavorable exchange rate situation will also make itself felt. Due to the 2.4 percent wage increase under the collective bargaining agreement, which was approved in 2007, staff costs will rise again. Continuation of our cost reduction measures and increases in efficiency will have a favorable impact on earnings. Overall, we are projecting a considerable shortfall of the current financial year’s result of operating activities compared with the result of the past financial year.
Medium- and Longer-Term Development of the Propensity to Invest by the Print Industry
In the next few years, streamlining requirements in the industrialized countries, which will intensify due to high prices for paper and energy as well as high staff costs, will result in replacement capital investments by print shops. This is particularly likely if the industry's capacity utilization remains stable at a high level, or if in the US it returns to a higher level.
The considerable economic momentum in the emerging markets will also continue to favorably impact the business development of our customers in these countries on both a medium- and long-term basis. The volume printed per annum will continue to increase at an above-average pace here, among others because market saturation with printed products is still very low in these rapidly growing economies. The trend towards demand for high-quality solutions in emerging markets will increase further.
Heidelberg's Longer-Term Prospects: Focus on Service and Consumables; Strengthening Market Position
We are projecting that the print industry will generate only slight annual growth over the next few years. One thing is clear: We have the right overall offerings to help print shops successfully meet the challenges of the future - regardless of size, strategic alignment, or geographic location. Our sales in the next two years will primarily be carried by our new products and solutions. In subsequent years we will generate additional sales primarily through our expansion of the service and the consumables business.
The Heidelberg Group's liquidity is secured on a long-term basis. Our line of credit is far from fully used. Up to now, our shareholders have benefited from payout ratios of 40 to 50 percent, and we intend to retain this dividend policy.
We want to increase our independence from further exchange rate developments. We are consequently further expanding our international procurement and producing more printing presses in China for local customers. We protect ourselves conservatively against remaining currency risks.
In order to reduce cyclical dependence on the printing press business, we strengthened our position in the rapidly growing packaging printing sector and broadened our regional diversification. Moreover, we are accelerating the non-cyclical service segment, which includes spare parts and supplies. We also see the potential of strengthening our business by means of acquisitions, participations, or cooperative agreements. If attractive opportunities arise, we will further round out our product offerings through such measures.
Our organization is sufficiently flexible to adapt quickly to changed underlying conditions.
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As at: July 2008
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