We started to follow Heidelberger Druck almost 15 years ago. At that time, the shares traded at around €20 but they fell into penny-stock territory briefly in 2019 and genuinely in 2020. During these years, the company accumulated net losses of more than €500m and the EPS numbers were positive in seven but negative in six of these years. Simultaneously, revenue collapsed from €3.8bn to €2.5bn and the workforce was cut from almost 20,000 to less than 12,000.
Companies: Heidelberger Druckmaschinen AG
Heidelberger Druck has not generated any reasonable profits for several years which has caused its balance sheet quality to deteriorate sharply. To deal with this, management has announced drastic actions to keep the company alive.
The lack of volumes and intensifying price pressure have resulted in quite sizeable operating and net losses in the last quarter. In addition and as business conditions remained weak in Germany and most of Europe, the product mix changed which resulted in further profit pressure.
With a market cap of €500m, this peer is also small, but it is larger than Heidelberger Druck’s c. €360m. We do not analyse the peer, but it competes directly with Heidelberger for sheetfed printing machines. In addition, it manufactures speciality offset printing machines such as for the printing of banknotes.
The company’s Q2 EBIT number was actually quite good and so was the pre-tax profit number. Both numbers were up, but the H1 profit numbers are still down. Higher revenue and lower personnel costs have contributed to this Q1 development.
The printing of books and brochures was invented some 600 years ago and it seems that companies that continue producing printing machines are becoming obsolete. Heidelberger Druck planned to protect its business model by offering full-service leasing contracts to its clients, but the Q1 19/20 numbers suggest that this is not helping.
Heidelberger Druck with its sheet-fed printing machines has been under profit and share price pressure since the beginning of the current decade. It is the lack of demand for printed brochures and other smaller print jobs that has caused this setback. Management has tried to protect the company by developing machines for printing packaging material, but this has been insufficient to keep order inflow, revenue and profit numbers where they were ten years, not to mention twenty years ago.
Heidelberger Druck’s order inflow and revenue fell by 4% to €579m and 11% to €606m, respectively, in the last quarter. At the same time, the respective EBIT and pre-tax earnings numbers were down by 19% to €22m and 57% to €6.5m. Whereas 9M revenue is short of our projected number (€1.76bn), EBIT of €49m is higher (€43m) and pre-tax earnings of €1m are about in line (€2m).
In 2014, Heidelberger Druck acquired all the shares of Swiss Gallus, a producer of packaging printing equipment. The Gallus owner (Ferd. Rüesch AG) received a stake of around 9% in the German company and continues to hold this stake. This time, the share issue will not expand the company’s product portfolio but is intended to strengthen the relationship with Masterwork.
Heidelberger Druck showed H1 numbers that fell slightly short of our expectations although we had anticipated that Q2 profits would be lower than last year’s. Order inflow was up by 6% to almost €1.31bn, while revenue also increased by 6% to a good €1.11bn. Consolidated EBIT was unchanged from last year at €27m (-17% to €25m in Q2 alone) while the pre-tax loss was €5.5m compared to a profit of €2.0m. As a result, the pre-tax result fell by 50% to €8.5m in Q2. Finally, H1 cash from operations (ba
Revenue growth of almost 10% has been insufficient to drive profits strongly up. The new profit numbers are a clear disappointment to us and this is certainly also true for cash generation.
Heidelberger Druck’s order inflow was about unchanged at €2.59bn in 2017/18 and revenue fell by 4% to €2.42bn. As a result, EBIT was down by 5% to €103m while net profit collapsed by 61% to €14m as a consequence of the US income tax reform which increased deferred tax charges by €25m. Except for order inflow, all the numbers released were lower than we had anticipated and management blames currency effects. Excluding these, revenue would have fallen by 1.3%.
Heidelberger Druck’s machinery is overwhelmingly produced in Germany and shipped to clients around the world. As major competitors are Japanese and as the yen has fallen almost in line with the US dollar, currency movements have started to bite into earnings.
Heidelberger Druck has introduced a new business model for its Digital business which, in our opinion, increases the potential risks considerably.
Management expects the tax reform to lead to an additional €25m in income tax charges in the current fiscal year. This will not be cash effective but simultaneously lead to lower deferred tax assets, i.e. this asset item will be down, as will equity.
Management previously expected net earnings to increase in 2017/18 but now sees it coming in considerably below last year’s €36m. Our current projections see net earnings of €57m. However, including the above tax charge, it will be down to around €
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