Statement by Bernhard Schreier |
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| 06/08/2004 |
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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 expected.
- 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 earnings.
- 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 to grow
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 strongly consumer-driven.
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 levels.
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 being forecast.
In the USA, the volume of printed materials has grown by almost 4 percent since the start of 2004 – the first rise since the year 2000.
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 detail.
Heidelberg business performance 2003/2004 – revival after a weak start
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 costs.
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 our portfolio.
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 at drupa.
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 much better
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 business performance.
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 results?
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, functional organization.
We will continue to build upon our strategic competitive advantages.
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 printing market.
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 Mönchengladbach sites.
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 further.
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 company's history.
We presented 50 innovations in our core sectors of prepress, offset and finishing as well as the associated services and training courses.
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.
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