Heidelberg’s action package means 2,000 fewer employees

Primefire and VLF offset presses to be discontinued

The Heidelberg office and plant in Wiesloch, Germany
The Heidelberg office and plant in Wiesloch, Germany

A press release received in New Delhi in the early morning of 18 March 2020, states that the management board of Heidelberger Druckmaschinen (Heidelberg) on 17 March 2020 adopted a wide-ranging action package. Apparently the ‘action package’ was announced last year, and is aimed at a short-term reduction in structural costs, including the redundancy of 2,000 employees. It hopes to achieve long-term improvements in the company’s profitability.

Focus on the core

The prescription or ’action package’ calls for a focus on the profitable core business and systematic streamlining of the cost base to deliver a €100 million (Rs. 800 crore) improvement in the EBITDA, ‘excluding the restructuring result.’ The press release says that “At the same time, a return transfer of liquidity reserves from the trust fund will almost completely eliminate net debt, thereby significantly improving Heidelberg’s financial stability.”

Rainer Hundsdorfer, chief executive officer of Heidelberg
Rainer Hundsdorfer, chief executive officer of Heidelberg

Heidelberg’s chief executive officer Rainer Hundsdörfer, states, “Heidelberg’s realignment is a radical step for our company that also involves some painful changes. As hard as it was for us to make this decision, it is necessary in order to put our company back on track for success. Discontinuing unprofitable products enables us to focus on our strong, profitable core. This is where we will further extend Heidelberg’s leading market position by leveraging the opportunities of digitalization. Going forward, we will continue to provide our customers worldwide with technologically leading digital solutions and services across the board.”

Financing secured, net debt to be almost completely eliminated

Heidelberg is improving its liquidity with a return transfer of part of the liquidity reserves of approximately €375 million (Rs. 3,200 crore) from the trust fund managed by Heidelberg Pension-Trust e.V., established in 2005. In this way, the company plans to significantly improve its financing structure by reducing debt – notably including the repurchase of a €150 million high-yield bond – and to press ahead with its realignment systematically.

According to the press release, with the return transfer, the board of Heidelberg Pension-Trust has resolved to support Heidelberg’s stabilization and reduce the assets held in trust to a level that provides for those pension entitlements not covered by the statutory pension plan. The measure consequently has no negative impact on existing and future pension entitlements.

“We are dealing responsibly with the funds placed in trust by Heidelberg, in the interests both of the pension beneficiaries and of the company. The sounder the company’s financial base, the better it is for its pension beneficiaries,” said professor Rupert Felder, chief executive officer of Heidelberg Pension-Trust e.V.

Action package to increase profitability

The press release says Heidelberg is to direct its future focus to the profitable core business (multicolor sheetfed offset presses up to 106 cm format) with an average EBITDA margin of over 8%.

Discontinuation of Primefire digital inkjet B2 sheetfed and VLF presses

The release says Heidelberg will discontinue individual products that earn far too little and significantly impact the company’s profitability with an annual loss totaling some €50 million (Rs 400 crore). The market for the Primefire 106 digital press has grown much more slowly than anticipated. In other words, the press shown at drupa 2016 and with several beta customers in the following years has not gained traction in the market, although it was claimed to be in series production.

Similarly, in sheetfed offset printing, the very-large-format product range has not caught on. Readers may remember that this product extension was embarked on by Bernhard Schreier who was the Heidelberg CEO at the time. A new building was constructed at Wiesloch for the purpose.

Scheier was followed by Rainer Hundsdorfer and Gerold Linzbach, as CEO’s brought in from other industries. It was Linzbach who presided over the full acquisition of Gallus by Heidelberg by purchasing Ferdinand Ruesch’s take in Gallus and set up the collaboration with Fujifilm Dimatix to develop the Primefire digital press. Regarding the discontinuation of the Primefire and the VLF offset presses, the press release says these actions are, “To improve overall profitability as soon as possible, production in both businesses is to be discontinued by the end of 2020 at the latest.”

Heidelberg’s realignment or ‘Action Package’ is accompanied by streamlining of production costs and structural costs, which means it is planned to affect up to 2,000 jobs worldwide and may also include plant closures. (One decade-old rule of thumb is that it cost about €100 million to make 1,000 employees redundant in Europe.)

FY 2019-20 impacted by action package and economic environment

The press release states that the non-recurring expenses for the action package and the increasingly deteriorating global economic situation due to the corona pandemic will negatively impact sales and earnings in the current financial year more severely than so far anticipated. It must, therefore, be assumed that full-year sales will now be well below the prior-year level of some €2.490 billion. Hence the forecast EBITDA range – excluding the restructuring result and one-time proceeds from the sale of Hi-Tech Coatings – of between 5.5 and 6.0% can longer be attained. Including the non-recurring charges due to the company’s realignment, the current expectation is for the net result after taxes to be negative, reflecting the size of the restructuring expenses.

Our view

Apart from our views, as stated in the text above, we anticipated the need for an action plan. In a sense, we are relieved that it has come sooner than later. There are many things one needs to understand before one can say too much more, although some will say that we have already spoken up too much and too often. The press release does not mention the Heidelberg subscription or annuity model for selling presses, which we believe has been controversial within the company in the past few months.

Before and after receiving this press release, we sent a query to Heidelberg about its present employee levels for which we have just received a reply. As of 31 December 2019 Heidelberg had 11,367 employees. Heidelberg’s employee level or the number of personnel is still the critical question. Where does the reduction of 2,000 employees and the closing of some plants take them? Is it soon enough? Is it far enough?

The Covid-19 pandemic led to the country-wide lockdown on 25 March 2020. It will be two years tomorrow as I write this. What have we learned in this time? Maybe the meaning of resilience since small companies like us have had to rely on our resources and the forbearance of our employees as we have struggled to produce our trade platforms.

The print and packaging industries have been fortunate, although the commercial printing industry is still to recover. We have learned more about the digital transformation that affects commercial printing and packaging. Ultimately digital will help print grow in a country where we are still far behind in our paper and print consumption and where digital is a leapfrog technology that will only increase the demand for print in the foreseeable future.

Web analytics show that we now have readership in North America and Europe amongst the 90 countries where our five platforms reach. Our traffic which more than doubled in 2020, has at times gone up by another 50% in 2021. And advertising which had fallen to pieces in 2020 and 2021, has started its return since January 2022.

As the economy approaches real growth with unevenness and shortages a given, we are looking forward to the PrintPack India exhibition in Greater Noida. We are again appointed to produce the Show Daily on all five days of the show from 26 to 30 May 2022.

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– Naresh Khanna

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