An Exclusive Interview with Rainer Hundsdörfer, CEO Heidelberger Druckmaschinen AG
Past few months have been a roller coaster of events for Heidelberg. They made big announcements, some of them shocking, but it seems that the company, which still is the biggest press manufacturer in the world is on its way to financial stability. In order to make sense of Heidelberg’s recent controversial decisions we decided to talk to the man at the helm of the company and here is what he had to say:
Is Heidelberg financially healthy at the moment?
Yes, we are. We are making rapid progress with the transformation initiated in November last year to increase profitability, competitiveness, and safeguard the future. Following the financial stabilization through the retransfer of €380 million from the trust assets of Heidelberg Pension Trust e.V. in March 2020 and the decision to divest from loss-making activities by the end of 2020, significant structural measures are now being implemented. We have already agreed with the works council on socially responsible solutions for the reduction of around 1,600 jobs worldwide. In June, a new operating model was launched which, with fewer management levels, leaner processes and a significantly improved customer focus, enables more efficient management of the profitable core business. Overall, the action package is designed to improve Heidelberg’s profitability by € 100 million. We also believe that the program will strengthen our position in the ongoing difficult market environment.
We are in the process to sell the Gallus Group in Switzerland, which operates in the label sector, to the Swiss company benpac Holding AG. The agreed purchase price of € 120 million will generate earnings in the mid-double-digit million Euro range in the current financial year.
The next milestone in our ongoing financial stabilization and transformation process is the pay back of the remaining amount of € 150 million on the existing high-yield bond (HYB), which has a term to maturity until 2022 and a coupon of 8 % p.a. We will make the payback before maturity in September 2020. The pay back will be funded from cash reserves and will unburden the financial result by approx. € 12 million per year.
This gives us leeway for future investments and to shape the future of our company. We’re thus giving our liquidity a big boost, which will be particularly helpful during the coronavirus crisis. Overall, the company is thus financially more stable than it has been for years.
History has not been kind to Heidelberg when it comes to digital printing. Back in 2000 was Nexpress project, which didn’t go anywhere and now Primefire, which was supposed to be Heidelberg’s big break into digital printing, so what seems to be the problem?
The Primefire is the best product in this segment at the moment. However, we had no choice but to realize that the market for it has not developed to date as we expected. We therefore decided to abandon production of the Primefire. This is the only sensible decision from an entrepreneurial point of view, given the fact that this segment is quite simply unprofitable. Continuing production would ultimately be at the expense of our profitable and world market-leading core business, since we would no longer be able to provide all the technological developments our customers need.
The big press manufacturers have been diversifying since at least two decades ago, venturing into different areas of printing such as flexible packaging, security printing and so on and so forth, do you think at the moment Heidelberg product mix is a right one for the current state of the graphic arts market?
Our focus now is the interests of our customers and their needs and a clear focus on our core business. Our core business remains printing. We support our customers in packaging and label printing as well as in commercial printing throughout the entire process – from the offer to the invoice as a solution provider. In other words, along the entire value-added chain. Heidelberg is currently the only company in the industry that is able to do this as a global technology leader.
Based on the customer’s needs, we can put together an offer that perfectly meets his individual requirements. Our customers look at the added value of digital offers for the printing process. Because “printing” must be “smart”. And Heidelberg offers exactly that. Because with our Smart Print Shop, we digitalize printing. The Smart Print Shop thus forms the backbone of our digital solutions. In future, we will therefore be systematically continuing to digitize processes, with a focus on operator-independent performance.
It seems that Covid 19 will be with us for some time, how will this pandemic affect Heidelberg’s plan and strategy for next few years?
Heidelberg is addressing the right issues and is doing so resolutely, leaving no stone unturned. Based on our strong core business, we’re placing the company on a sustainably profitable footing, which will give us a bright future. We are and will remain the industry’s technology leader. And as a full-service provider, we are and will remain a strong partner supporting our customers. We’re focusing on the things that give our customers what they need.
Heidelberg is aggressively downsizing in order to become profitable and also to ensure cashflow, but due to Covid 19 it is almost impossible to control cashflow and predict the cost of restructuring, is it really possible for Heidelberg to have a fair assessment of the future?
Heidelberg’s future is not primarily about size and growth at any price, but rather a focus on profitability. This will lay the foundation for us to benefit from a recovery of the markets with our realignment.
Our goals are clear, as are our priorities for the coming months. By implementing the realignment, we are making Heidelberg weatherproof, securing liquidity, strengthening equity, streamlining structures and organization, and consistently increasing our profitability.
We will also drive forward the necessary cultural change within the company. The aim is to systematically implement the transformation of Heidelberg into a flexible modern medium-sized company with flat hierarchies and entrepreneurial action at all levels.
Offset will be the number one choice for package printers for many years to come, but within commercial printing sector offset is losing ground, where does that leave Heidelberg now that you have also decided to pull the plug on digital?
We serve packaging, label, and commercial printing customers in sheetfed offset. Postpress opens up huge potential for industrialization, connectivity, and robotics. We are also working on this with our partners MK Masterwork and Polar. In the digital printing segment, we will henceforth be concentrating on the Versafire for commercial printing. Alongside this strong core, we want to continue to dedicate ourselves to the topic of the Smart Print Shop and artificial intelligence, and to further drive the associated digital transformation in order to support our customers in improving their operational processes with the right technology.
The packaging market is systemically relevant for key industries such as the food industry or the health sector, especially in times of Covid-19. Moreover, our consumer behaviour has continued to change during the crisis. Most of us increasingly ordered online and cooked at home during the lockdown, as company canteens and restaurants were closed. Our packaging customers had to adapt their production of household packaging to the increased demand in order to avoid delivery bottlenecks and empty supermarket shelves.
Heidelberg is already the largest supplier to packaging printers. In financial year 2019/2020, half of our sheetfed offset press sales were generated in this segment. We sell as many printing units for the packaging market alone as our largest competitor overall.
We also enter into long-term partnerships with strong partners. With MK Masterwork, for example, we are supplementing our range of products in packaging printing with highly attractive finishing machines that are required.
2020 Q1 is almost over, is the order intake satisfactory considering the current dismal economic situation?
As expected, the first quarter was heavily impacted by the Covid 19 pandemic, as was the case in almost all industries and especially in export-oriented mechanical engineering. The consistent implementation of our transformation program is helping us to emerge stable from the crisis. Financially we are in a solid position, the portfolio streamlining is progressing, and our cost efficiency measures are already showing initial positive effects. At the same time, we feel that the market is gradually coming back and, as a result, we are recording rising order intake again. Significant signs of recovery from the effects of the Covid 19 pandemic became apparent in the last month of the reporting quarter: order intake rose by around 27 percent compared to May in June. The positive trend in new orders continued at the beginning of the second quarter in July, with new orders exceeding the June figures. With our market initiatives, we are consistently focusing on the demands of our customers in these challenging times. We are confident that we will continue to score points with the right offers and solutions.
A normal sale cycle for sheetfed press is between 6 to 12months, so due to Covid 19 have you experienced many order cancellations from last year?
We are still in discussion with our customers who had plans to invest in this drupa year 2020. We believe that many of those investment plans will be concluded before the end of this year.
You have decided not to participate in drupa and other major international exhibitions instead you will be focusing on digital and local event, next year Gulf Print will be held in Dubai, which perfectly fits the description of a local event, will you be participating in Gulf Print?
Heidelberg Middle East does not plan to participate in Gulf Print next year.
Does Heidelberg consider Middle East as a growth area?
Heidelberg considers Middle East as a growth area especially in the packaging, label and specialty printing.
What is Heidelberg’s digital strategy after Primefire?
Digital printing is only one part of the digitization process in our industry. Our software solutions provide the greatest leverage for digitization of the printing process. This is only possible with the appropriate software, therefore our future investments will focus on end-to-end digitization and an integrated system solution for the machines, software, consulting, and service. Our goal is to be the partner of our customers and help them to better manage the complexity introduced by short runs, and increase their profitability. To do this, Heidelberg looks at the production process as a whole, but focuses on its core business, which is sheetfed printing, both with offset and digital technology. We already have integrated the Versafire successfully into our Smart Print Shop concept.
Do you still believe digital printing provides growth opportunity for Heidelberg?
The termination of the Primefire 106 project does not mean that Heidelberg is abandoning digital printing, nor digitization. We are still in the arena of digital printing and we will strengthen our digital transformation processes. Heidelberg today has probably the most extensive inkjet know-how among European manufacturers, and it is an asset that we want to exploit for our existing digital solutions. The OEM relationship with Ricoh, for example, will continue and we will strengthen our Versafire family.
Does Heidelberg’s subscription model work only for big companies or small and medium printers can also benefit from it?
We’re well on the way to becoming a digital, software-based company, and the current crisis underlines the necessity to make even more rapid progress now. Our contract business is a cornerstone of our future success. We know our customers have very different needs.
Print Site Contracts are available in the form of lifecycle agreements or subscription agreements. Customers have a choice of four packages with different scopes of services and methods of payment. They range from a “Lifecycle Smart” contract that includes services and consumables to a “Subscription Plus” package that covers consulting, training, service, consumables, Prinect software, and equipment solutions. All four packages aim to maximize customers’ overall equipment efficiency (OEE), which represents the actual added value when compared to purchasing individual components.
Heidelberg stopped the production of very large format presses which seems to be somewhat unexpected because offset printing has always been Heidelberg’s forte, what happened?
The situation with the Speedmaster XL 145 and the Speedmaster XL 162 is similar to the situation with the Primefire 106. The very large format presses are built on the most modern and high-performance platform on the market, designed not only for formats 6 and 7, but also for format 8. Several formats should therefore be covered by one platform. However, the markets have been increasingly developing towards format 6 in recent years, which means that no profitable business is possible with the large platform at the prices in this market segment.
The announcement to drop Primefire and the VLF offset presses had a detrimental impact on printing industry everywhere including the Middle East, on top of it downsizing creates more uncertainty, does this mean that Heidelberg is no longer interested to be the biggest press manufacturers in the world?
I underline that Heidelberg is and will remain the industry’s trendsetter and innovation leader.We’re focusing on the things that give our customers what they need and generate sufficient added value for us. That means our profitable core business. We’re resolutely setting a fast pace and, if we keep it up, our strong brand, our profitable core business, our innovative strength, and our positioning in growth markets will ensure we have a bright long-term future. Our customers are becoming aware of the added value of digital solutions for the printing process – because printing has to be smart. And that’s exactly where Heidelberg comes in, digitizing printing with our Smart Print Shop. That makes the Smart Print Shop the backbone of our digital solutions. In the future, we’ll therefore systematically continue digitizing processes with a firm focus on optimum performance no matter who is operating the equipment.
In an interview you said global print market has a relatively constant volume of 400 billion Euros, how did you come up with that number?
The market for print products remains stable with a worldwide print volume of more than 400 billion euros annually. While the overall print volume continues to grow in the emerging markets, print service providers in the industrialized nations are exposed to a very dynamic and rapidly changing market environment. The increasing substitution of publishing products and commercial products by the Internet and the effects of demographic change on the purchasing and reading behavior of the population are leading to a decline in the corresponding revenues. Varneshing and individualization, on the other hand, increase the value of the individual print products. Packaging and label printing is also growing. This can be seen especially in the times of the Corona Pandemic where packaging is system relevant. All in all, this then balances out on a global basis.
In which way IoT and industry 4.0 is influencing printing industry and Heidelberg’s approach to Print industry?
In 2000, as a pioneer among printing press manufacturers, Heidelberg developed the Prinect Smart Print Shop basic software to turn comparatively limited functional machines into intelligent machines.
Since 2008, we have been networking our intelligent machines in order to continually improve print operations and service with the help of production and status data. To this end, customers are integrated into the Heidelberg cloud with its unique data treasure. This data treasure is the prerequisite for the success of our new subscription model.
The Smart Print Shop is also based on networking and intelligent data evaluation. This includes the Heidelberg Assistant, which customers use to automatically monitor and schedule their production and material supply. We went into production with the most intelligent and most automated Speedmaster in the 70 x 100 format in April this year – the new Generation 2020, and by doing so are consolidating our market shares of up to 70 percent in the industrialized markets.
Following the overwhelming success of Push to Stop at the drupa 2016, we have invested a great deal in advancing the idea of the Smart Print Shop and in taking Push to Stop to a new level. Software development, of course, plays a key role in this. Heidelberg, however, has also heavily invested in press technology, closing automation gaps, further optimizing subprocesses, and developing new applications. With our flagship, the Speedmaster XL 106, we have defined the term Peak Performance Class in the industry. With our new Speedmaster generation, we offer our customers outstanding conditions to fully exploit the possibilities of modern, digital offset printing.
One of the great initiatives of Heidelberg was offering data that was collected through thousands of connected Heidelberg machines throughout the world, the so called “heat maps”. This initiative has a lot of potential for the future, however how reliable the data is and do you think it has a potential to become a universal initiative by inviting other manufacturers to join Heidelberg and share their data?
With the Print Media Industry Climate Report we have our finger on the pulse of our customers. The weekly climate in the print industry was developed to support print shops during the Corona pandemic in particular. It is important for all participants in the printing industry to understand which market segments and countries are currently most affected. The basis for this added value is the extensive data pool of our cloud, to which almost all newly delivered presses are connected. Heidelberg analyzes data from some 5,000 connected presses worldwide to produce the Print Media Industry Climate Report and tell its customers about significant market developments so they can better respond to the crisis.
We publish this information without access restrictions in order to set an example for the industry and are happy to exchange information with printing associations and partners worldwide. Together we are mastering this crisis.
Now that Heidelberg sold Gallus to benpac some printers asking who will be responsible for services and support, since benpac doesn’t have Heidelberg’s vast sales and support network especially in the Middle East? How long the transition of responsibilities from Heidelberg to benpac regarding Gallus will take?
Heidelberg Middle East has been the sales and service partner of Gallus in the region for the past two decades. It has excellent availability of local industry expertise in terms of consulting, spare parts, consumables and engineering service. They have enjoyed a vast market share and installed base in the region. Heidelberg will continue to work with Gallus to serve its’ customers and installed base in the region.