Good Order Situation at Start of Second Quarter

- Towards the end of the first quarter in particular, the need for further strategic development of the company was highlighted by the increasing reluctance to invest, especially in western Europe, and associated shifts in sales due to the economic slowdown. Quarterly sales, EBITDA excluding restructuring result, and the net result after taxes, for example, were all down on the corresponding figures for the previous year. In mid-July, Heidelberg adapted its outlook for financial year 2019/2020 as a whole to reflect the changed business expectations. Measures introduced to increase liquidity and safeguard profitability Despite an improving order situation at the beginning of the second quarter and continuing positive effects from the successful Print China 2019 trade show, Heidelberg has immediately introduced measures to boost results. These include strategies to make working hours more flexible in the short term – such as working-time accounts and short-time working – and structural projects to achieve a sustained increase in profitability. Heidelberg has also initiated a program to significantly improve the net working capital and free cash flow. This involves closely scrutinizing many of the investments planned for the current financial year and the next, with a view to cutting planned investments by some € 20 million. Optimized lead times and inventory levels as well as better accounts receivable management are also envisaged to reduce the tied-up capital by around € 50 million. In addition, Heidelberg is considering portfolio adjustments, which will involve selling some smaller areas of the company, together with further structural optimizations. Overall, the liquidity potential identified totals some € 100 million. "The good start to the second quarter means we're confident of achieving our planned business volume for the financial year. What's more, the positive impact of the numerous measures we've introduced to improve our results and free cash flow will be felt in the second half of the financial year," said Heidelberg CEO Rainer Hundsdörfer. "In the years ahead, the digital transformation is set to lessen our future exposure to economic fluctuations by increasing the share of recurring business to around one-third of our group sales. We've already made significant progress in this respect. Additionally, we are continuously expanding our market share by investing in our core business," he added. Operational development in the first quarter affected by economic uncertainty In the face of growing economic uncertainty, above all in central Europe, sales at Heidelberg fell from € 541 million to € 502 million in the first quarter of 2019/2020 (April 1, to June 30, 2019. Despite far higher demand in China following the successful Print China trade show, incoming orders of € 615 million as at June 30, 2019 were down on the previous year's figure (€ 665 million). The order backlog increased by around 12 percent, from € 654 million at the end of the previous financial year on March 31, 2019 to € 730 million as at June 30, 2019. This is partly due to the new subscription contracts, which will be reflected in the sales figures over their respective terms. EBITDA excluding restructuring result amounted to around € 14 million (including an IFRS 16 impact in the region of € 5 million). This, too, was down on the unadjusted figure for the previous year of around € 20 million. EBIT excluding restructuring result totaled € –10 million (same quarter of previous year: € 2 million). The EBITDA margin excluding restructuring result (but including the impact of IFRS 16) was 2.8 percent, following a figure of 3.7 percent for the corresponding quarter of the previous year. The financial result improved from € –16 million in the equivalent quarter of the previous year to € –13 million. The net result after taxes, including income taxes, was € –31 million (previous year: € –15 million). Seasonal increase in net working capital negatively affects free cash flow The increase in net working capital, which is partly a result of lower customer advance payments due to the lower order intake, the high capacity utilization at the production site in Shanghai, and investments to expand digital business models in the course of the financial year resulted in a negative free cash flow of € –83 million (previous year: € –45 million). The considerable reduction in the actuarial interest rate for pensions in Germany and the net loss for the quarter were the main reasons for the lower equity of € 295 million at the end of the quarter, which is equivalent to an equity ratio of around 13 percent. Higher financial liabilities on the reporting date were primarily due to the first-time application of IFRS 16 (€ 55 million) and the negative free cash flow. The net financial debt rose accordingly, amounting to € 391 million at the end of the quarter. The leverage on the reporting date for the quarter was 2.1. "In the short term, our focus is on optimizing the net working capital and on asset management. This will significantly reduce our debt and safeguard both our profitability and our financial stability," said CFO Dirk Kaliebe. Outlook for financial year 2019/2020 Heidelberg is expecting sales for financial year 2019/2020 as a whole to match the previous year's level. The company anticipates that further stable expansion of its contract business will compensate for the economic slowdown and the associated reluctance to invest in equipment. In the current financial year, Heidelberg is targeting EBITDA excluding restructuring result of between 6.5 and 7 percent of sales, and is expecting to break even after taxes. Even factoring in the higher net financial debt following application of IFRS 16, the leverage is set to remain below the target of 2 previously announced by the company. Image material, the interim report for the first quarter of financial year 2019/2020, and additional information about the company are available in the Press Lounge of Heidelberger Druckmaschinen AG at www.heidelberg.com. Heidelberg IR now on Twitter: Link to the IR Twitter channel: https://twitter.com/Heidelberg_IR On Twitter under the name: @Heidelberg_IR Other dates: The scheduled publication date for the financial statements for the second quarter of 2019/2020 is November 6, 2019. Important note: This press release contains forward-looking statements based on assumptions and estimations by the Management Board of Heidelberger Druckmaschinen Aktiengesellschaft. Even though the Management Board is of the opinion that those assumptions and estimations are realistic, the actual future development and results may deviate substantially from these forward-looking statements due to various factors, such as changes in the macroeconomic situation, in the exchange rates, in the interest rates, and in the print media industry. Heidelberger Druckmaschinen Aktiengesellschaft gives no warranty and does not assume liability for any damages in case the future development and the projected results do not correspond with the forward-looking statements contained in this press release.