Annual Press Conference - Statement by Bernhard Schreier

Bernhard Schreier, Chief Executive Officer of Heidelberger Druckmaschinen AG at the Annual Press Conference of June 7, 2006

The spoken word applies

Words of welcome

Highlights of financial year 2005/2006

Ladies and Gentlemen,

The figures for Heidelberger Druckmaschinen AG for financial year 2005/2006 bear witness to our company's comparatively favorable progress. The upward trend in the world economy, the print media industry and at Heidelberg is continuing.

• In contrast to last year, the Heidelberg Group was able to meet or even exceed its expectations for almost all key figures.
• At 3,605 million Euro, incoming orders in financial year 2005/2006 surpassed the volume for the same period last year, when the industry's largest trade show, drupa, was held.
• The favorable order situation has already ensured that we will have very respectable capacity utilization for the first six months of the current financial year. The order reserve at the balance sheet date was 3.5 months.
• Our sales in the past financial year increased more sharply than expected. In each quarter, sales exceeded the corresponding figures for the same quarter of the previous year. With total sales of 3,586 million Euro, we exceeded the corresponding figure for the previous year by almost 12 percent.
• We achieved an operating result of 277 million Euro and thus an operational return on sales of 7.7 percent.
• We attained a net profit of 135 million Euro, thereby more than doubling the corresponding figure for the previous year.
• The Management Board and Supervisory Board will propose to the Annual General Meeting on July 20 a dividend of 0.65 Euro per share for financial year 2005/2006 - more than double last year's dividend.
• The publication of our financial results this morning was accompanied by a personnel announcement. At its meeting on June 2, the Supervisory Board appointed the current Head of Financial Accounting and Investor Relations, Dirk Kaliebe, to the position of Member of the Management Board responsible for Finances. This appointment will take effect from October 1 of this year. My colleague Dr. Herbert Meyer, whose contract runs out on September 30 of this year, will then retire after 12 years of successful work for Heidelberg. He will be retained by Heidelberg in an advisory capacity, e.g. on the Board of Goss International. Dr. Meyer will assume a new managerial role outside the Heidelberg Group next year.

Ladies and Gentlemen,

The past financial year clearly points towards a growing confidence and willingness to invest in the industry. The positive developments we are seeing in our business results are clear evidence that the crisis, which lasted a full three years, is behind us.

We are confident that this development will continue into the current financial year 2006/2007. Despite the uncertainty of exchange rate movements, raw material and energy prices, and the ongoing price competition, we expect both our industry and the economy as a whole to show continued improvement and for Heidelberg, as the world's market leader for solutions in the sheetfed offset market, to benefit from this.

The new financial year has got off to an excellent start. The level of incoming orders remains good in the first quarter. This has been achieved, first and foremost, by the success of the Ipex trade show at the start of April and by our biggest ever single order in China.

General economic and market conditions

Ladies and Gentlemen,

We expect the world economy to experience high growth rates in the 2006 calendar year too. Various institutes and banks, including the International Monetary Fund (IMF), are reckoning with growth of 4.9 percent. Nevertheless, high and volatile oil prices pose a threat to global economic growth.

Overall, the conditions are good for the growth of the print media industry, which is of course dependent on the overall state of the economy. As a rule of thumb, it is possible to say that the overall growth of the sheetfed offset market mirrors the growth of the global economy.

In the industrialized nations, sales of print products grew again during the year under review. In Germany, the sales volume of print products in 2005 grew by 1.9 percent over the previous year, and in the U.S. by 2.5 percent over the same period. We expect the print media industry as a whole to continue its recovery and the print volume to increase in the next few years.

The capacity utilization of printshops will continue to improve. In the year just closed, it reached the highest level for two years in both the U.S. and Germany.

The conditions are therefore right for achieving good sales growth in the years ahead as planned. We anticipate the higher demand for print products and the improved capacity utilization in 2006 to lead to a greater willingness to invest in capital goods in the print media industry.

Strategic activities

Ladies and Gentlemen,

As in the past few years, the threshold counties will continue to make the largest relative contribution to industry growth. On the one hand, they show disproportionately high growth rates and, on the other, the saturation level of print products is relatively low.

With its sales and service organization, Heidelberg has a greater presence in the threshold countries than any of its competitors, and this will enable us to capitalize even further on the growth of the print media industry in these markets. We expect the newly emerging countries of Eastern Europe, Latin America and Asia Pacific to increase their share of sales to 50 percent in the medium term. Just to remind you, these countries accounted for less than half that, 23 percent, in financial year 1997/1998.

Furthermore, our assembly facilities in China will enable us to tap additional market sectors in China because this site will manufacture presses for customers who want simpler, lower-priced but nevertheless high-quality products.

In the year under review, we became the first European supplier in the industry to set up a facility in China, where we will manufacture sheetfed offset presses specifically for the Chinese market from 2007 onwards. We have begun with folders in the first plant installation phase. Both products - sheetfed presses and folders - are ideal for building long-lasting customer relationships with up-and-coming print shops in China.

Ladies and Gentlemen,

In addition to expanding its activities in the regions, Heidelberg intends to reinforce its position as the sector's technology leader. At Ipex, which was held in April 2006 in the United Kingdom, we were able to demonstrate our leading position as a solutions provider by introducing over 20 innovations in prepress, press and postpress.

We have identified potential for sustained growth in the packaging printing segment - particularly in the printing and finishing of folding cartons.

Packaging printing is not influenced by cycles like those encountered in the advertising industry and provides stable growth with increases of five to seven percent per year. Heidelberg has hitherto had a much smaller market share in this sector than in commercial printing. We will build our share in the next few years through product innovations and organic growth.

By the market launch at drupa 2008, we will have developed a new generation of presses in the paper format class up to 162 centimeters. These large-format sheetfed offset presses and the die-cutters and folder gluers already in our portfolio will enable us to meet the requirements of customers in this segment of the market. We expect this development to generate new sales potential for Heidelberg.

Presses of this size cannot be built in Heidelberg's existing assembly halls. Work on the foundations for the new assembly hall for the oversized format, which represents an investment of 45 million Euro, began at the Wiesloch site in May 2006.

However, we also want to add to sales through our services, spare parts and consumables by ensuring that our customers have quick and easy access to our 3S concept - namely service, spare parts and supplies. In the medium term, Heidelberg is aiming to increase this product group's share of total sales from the current level of 19 percent to 25 percent.

All in all, present indications are that the external economic conditions and our planned advances on the market provide us with a sound basis for financial year 2006/2007.

Prospects for financial year 2006/2007

Ladies and Gentlemen,

We expect total sales for the current financial year to exceed sales in financial year 2005/2006 by around five percent.

In the Press Division, we will achieve sales growth first and foremost through large-format sheetfed offset including our Speedmaster XL 105, which has now been fully launched on the market.

We also expect sales growth in the Postpress Division, where our new generation of products has been well received by customers.

We intend to achieve a further improvement in the operating result in the current financial year. In the year under review, we recorded an operational return on sales of 7.7 percent. We are targeting a figure of around ten percent for the current financial year 2006/2007. A return on sales of around ten percent is above average in the mechanical engineering sector.

Conclusion

Ladies and Gentlemen,

The key parameters at Heidelberg for the current financial year are pointing in the right direction.

Our strategy is focused on adding value to the Heidelberg Group. We want to significantly increase the value contribution in the current financial year.

Our core operations involve adding value along the sheetfed offset chain - an area where our solutions and products have made us the global market leader - and the high-growth packaging and label printing market. All in all, we have maintained our position well as world market leader in sheetfed offset, a market where we enjoy a worldwide share of more than 40 percent.

We remain the leading international solutions provider in the print media industry - no other supplier can offer customers the same integrated workflow that we can deliver.

Our strategy of supplying integrated solutions sets us apart from our competitors. Solutions provide customers with crucial added value and give us a competitive edge on the market. Our solutions extend beyond just hardware and software. They also include our international network of Print Media Academies which offer a unique range of courses eagerly taken up by customers in the print media industry.

We also have the world's densest service and sales network in the industry and are looking to build on these strategic advantages.

My colleague Dr. Herbert Meyer will now discuss the results for financial year 2005/2006 in detail.

Thank you very much for your attention.