Heidelberg drives digital transformation - 20 contracts already signed for new subscription model
- Incoming orders up 6 percent to €1,306 million in first half-year
- Group sales also improve by 6 percent to €1,114 million
- Operating result (EBITDA) increases from €60 million to €62 million
- Still on course to achieve targets for financial year 2018/2019 as a whole
Six months into financial year 2018/2019, the launch of the new subscription model has led to further growth in incoming orders and the order backlog at Heidelberger Druckmaschinen AG (Heidelberg). No fewer than 20 subscription contracts covering the entire press life cycle – including service, software, and consumables – have been signed to date and demand for new machines remains healthy. As a result, incoming orders for the half-year have climbed by around 6 percent, from €1,234 million to €1,306 million. This figure would have been higher still had it not been for negative exchange rate movements amounting to €17 million. The order backlog improved by an impressive 23 percent, from €627 million to €774 million. Sales of up to €100 million, in particular for services and consumables, are expected over the standard five-year term of the subscription contracts already signed, which represent an annual sheet volume in the order of 1 billion pages.
“The subscription model offers huge potential. It’s transforming the market and also our company. We’re continuing to drive the digital transformation at Heidelberg,” commented Heidelberg CEO Rainer Hundsdörfer.
The implementation of the corporate strategy towards digitization is progressing. Printers in Europe, the US and China are already producing with high quality and productivity for their customers with the new Primefire digital printing system. With the newly founded Heidelberg Digital Unit, the e-commerce business will be rapidly expanded. As part of a digital roadmap, IT will also focus even more on efficient processes and the challenges of digital business models.
Half-year operating profit improves to €62 million
Despite negative exchange rate movements totaling €15 million, Heidelberg increased its net sales by 6 percent to €1,114 million (H1 2017/2018: €1,054 million) in the reporting period. EBITDA excluding restructuring result for the half-year climbed from €60 million to €62 million, which meant the EBITDA margin remained the same at 5.6 percent. EBIT excluding restructuring result matched the previous year’s solid level of €27 million despite additional staff costs resulting from the new collective bargaining agreement. Planned restructuring measures to improve efficiency generated higher restructuring expenses of €5 million (H1 2017/2018: €1 million). Furthermore, as already communicated, the partial repayment of €55 million of the existing high-yield bond, which was completed in mid-July, resulted in non-recurring transaction and early redemption charges. Consequently, the financial result after six months worsened from €–24 million to €–28 million, but will benefit significantly from lower interest payments in the future. The net result after taxes (including income taxes) thus fell as expected, from break-even to €–6 million.
This meant the operating cash flow of €27 million did not quite match the previous year’s level of €35 million. An increase in inventories due to the growing order backlog and the start-up of digital operations as well as investments in the construction of the innovation center at the Wiesloch-Walldorf site were among the factors influencing the free cash flow in the reporting period (€–86 million compared with €–32 million in the previous year). At €373 million, equity was substantially up on the level as at March 31, 2018 (€341 million), and the equity ratio improved accordingly, from 15 to 17 percent. Despite seasonal factors resulting in a higher net financial debt of €320 million (previous year: €259 million), the leverage of 1.8 as at September 30, 2018 was once again well below the target level of 2.
“As demonstrated in October with the acquisition of MBO, we’re investing in the company’s digital transformation. This highlights our strategic focus on consistently aligning our portfolio and new business models with the growth segments of digital and packaging,” said Heidelberg CFO Dirk Kaliebe.
Forecast for financial year as a whole unchanged – moderate growth in net sales and net profit after taxes expected
Given the solid progress in the first six months, Heidelberg can confirm the targets for financial year 2018/2019 as a whole. A moderate increase in sales and ongoing efficiency improvements should mean that, despite higher collectively agreed wages, the EBITDA margin excluding restructuring result will lie between 7 and 7.5 percent. Taking into account anticipated restructuring costs in the order of €20 million, non-recurring expenses from the partial repayment of the corporate bond, and rising tax costs at foreign subsidiaries, a moderate increase in the net result after taxes is forecast compared with the previous year (including a non-recurring tax effect in financial year 2017/2018).
Subscription model significantly increases order backlog – growing impact on net sales and result in years to come
It is expected that 30 contracts for the new subscription model will be concluded during financial year 2018/2019 as a whole, which will mean a further increase in the order backlog. Given the continued high level of interest from international customers, the number of contracts is set to climb to around 100 in the coming financial year. The new business model will only make a relatively small contribution to sales and the result at the start, but this will grow substantially in the medium term.