In Depth

Heidelberg sales chief Jürgen Rautert talks to Darryl Danielli about the recent workforce cuts at the manufacturer, the economy and the rise of digital

Described by his contemporaries as that rarest of things, an engineer with a commercial brain, Heidelberg’s rock-climbing second-in-command is said to command fear, respect, and admiration in equal measure. In an exclusive interview, board member for markets Jürgen Rautert talks jointly to PrintWeek and the editor of German sister title Druck&Medien, Andrea Bötel, and offers a frank insight into the future direction of the world’s largest press manufacturer.

Darryl Danielli: Let’s start with the big question. There’s a lot of speculation in the German press that Heidelberg is actively looking for investors, something that the company has denied. What is the root cause of that rumour?
Jürgen Rautert: There is no doubt that if you look at the Heidelberg equity situation, 10 years ago we had a different debt to equity ratio and today we are facing some difficult times ahead. However, our finances give no cause for concern. But nobody knows how long the difficult times will last and we plan accordingly. We all hope that the economic difficulties will not last too long, but it’s better to be prepared than to just sit here, and this triggers rumours that there is some activity regarding talking to potential investors.

DD: What is your financial position, regarding your assets versus market capitalisation? Because clearly that makes you a tempting target [for a takeover].
JR: Of course, and I don’t have the exact figures to hand, but our assets are a multiple of our market cap right now. Just think of the value of our factories and foundry; the value of the foundry alone is probably not far away from our market capitalisation figure. We are not alone in this position though; we are in the middle of historic times and the financial system will not work as it worked before.

DD: As recently as last summer you had a global workforce of 20,000, and now you’re proposing to cut 2,500 on top of the 2,500 you announced in October – which means that in the past six months you’ve cut 25% of your workforce. In terms of job cuts, is that it for now? Is there any more ‘fat’ to trim?
JR: I think that’s it now. You should know that if you look at where our staff are distributed, we have around 5,000 people in the service division, and we will take out very few of these people because that is a growing part of our business and we have to ensure that our customers will not suffer from our measures – so in effect service will remain untouched. Production, of course, will be one of the most affected and we will also a cut a little bit in R&D, but making sure that we don’t lose the talent. We’ll cut sales [teams] too, as sales is moving slower, and administration, where we will cut the most together with back-office functions. The operational part of the business will be far less affected than the back-office.

DD: Obviously your fellow German press manufacturers are also having a tough time. In the future do you think there will still be three of you in operation?
JR: It depends if you are asking for my hopes or thoughts. Of course, I can imagine a life with less than three players to be a better life for us, provided we are one of the remaining ones, which is a safe assumption. But machinery manufacturers disappear slowly if they disappear at all. Closing one down is extremely costly, especially in countries like Germany, so I consider it rather unlikely that any will disappear.

DD: But surely these historic times make it more likely or at least plausible?
JR: Well, that is purely speculation. There is one advantage for the German press manufacturers: we have seen a seven-year decline in the yen/euro exchange rate since 2000 when it fell by more than 40%, which created a significant disadvantage for us when we came up against Japanese competition. However, there has recently been an upswing in the yen/euro rate of almost 40%, which puts us in a completely different competitive situation. Nobody can predict how long it will last, but if it lasts for just two or three years then the Japanese press manufacturers will be in trouble, and I think they may be already.

DD: Although, in the same way as the yen/euro rate is good for you, surely the pound/euro rate is not so good for you, in terms of sales to the UK?
JR: That’s true and that’s why Heidelberg’s sales in the UK are suffering.

Andrea Bötel: What is your focus, if you are selling fewer machines?
JR: Right now, service is one of the most important USPs in our portfolio, compared with our competitors, certainly in terms of economy of scale. We have seen no decline in the service business at all, and I’m looking almost weekly at the figures, but there is none. However, it is pretty clear that our share of the addressable market, to service our own machines and maybe even other manufacturers’ machines, was unacceptable [too low].

DD: Do you mean that you’re considering servicing other manufacturers’ presses?
JR: I wouldn’t exclude that.

DD: There is some speculation that you may be forced to flood the market with presses to improve your cash position. Is this likely?
JR: If you look at our stock levels, they’re at a normal level. Only sales have dropped down to an ‘un-normal’ level, so the ratio between stock and sales is, well, not enjoyable, but I think we would be stupid if we started to flood the market. We are still focused on a long-term future, not only for us but for the greater good of the entire industry food chain [i.e. printers] – there’s nothing more stupid than killing printers’ prices. Although, of course, we [Heidelberg] do have to try and be a little flexible here and there.

AB: Could a click-charge type model be a new way of selling machines, maybe in combination with consumables?
JR: Normally, if I raise the word ‘click’ with my customers, I’m not invited back. They don’t like it and I don’t think it would work in the offset market.

DD: But the problem in the UK, and probably the rest of the world, is that nobody is lending and printers just can’t get credit. So it seems that, because the paper and ink industries are in a lot of pain too, there’s an opportunity for press manufacturers to replicate the business model for platesetter sales and, while it’s not a click charge as such, enable printers to finance presses through consumables.
JR: You mean that we sell a printer a lump of cast iron and in return he signs an eight-year contract for ink, plates and everything? Well, if printers can plan for such a long period of time, and there are some question marks here, then models that are already going a little in this direction could evolve. Yes, I could imagine that happening.

DD: On a different topic, Heidelberg UK is not exhibiting at Northprint and you didn’t exhibit at Grafitalia – have you reviewed your exhibitions strategy?
JR: Yes. To put it bluntly, I hate the amount of money we have been spending at exhibitions, it is too much. Drupa is something very special, so it’s hard to reduce our spend there, but we have drastically cut back on shows in the US and we will reduce at Ipex, but we will be there. We will reduce the number of minor shows we attend around the world, as we would rather use our showrooms to demonstrate our products. I don’t think it’s fair any more to spend the kind of money we were spending 10 years ago, because in the end the customer pays. It is the same for exhibitions as it is in every other field of business – the minor players in the niches will continue and a few of the bigger ones will continue, but the medium-sized fairs will disappear from the industry. That’s my prediction.

DD: You mentioned earlier that you will be cutting some R&D roles. Will you maintain the 6% R&D spend in light of this week’s announcement. For example, are we any closer to the launch of the B1 Anicolor?
JR: When we stepped out of digital and web in 2004 we said okay, now we need to make a real push in research and development, and we spent almost €1bn, which was completed by 2008. So now, when we have to cut R&D, it is not going to hurt customers. We have openly said that we were planning to spend €150m in R&D this financial year and the percentage will be calculated against the sales figure, which is hard to predict. In comparison with the €220m spend on R&D during the previous year, then this is a significant cut. But in the recent past, we invested heavily in new platform development, such as the XL family of presses and the new die-cutters, but now the platform developments are, by and large, finished – so I would say that €150m is still a lot of money to spend on R&D. As far as Anicolor, I read recently that one of our UK customers [ABC Print in Hertfordshire] claimed they had saved 1.5m sheets of waste paper since installing Anicolor so, of course, it will continue into larger formats.

AB: Continuing on the subject of R&D, are you still developing the Linopress inkjet technology?
JR: Yes, we have actually sold the first devices now, not for ink on flat paper, but in niches, such as blister and special packaging and other applications on the pharmaceutical industry, labels and folding cartons. As I said a year ago, the Linopress might be a very big business or it might just be a medium-sized business, it’s hard to predict, but it’s on track. Of course, with the ever-improving inkjet heads we use from different vendors and our own technologies and know-how in terms of firing these, all this know-how is something we’re building on and one day we might decide ‘okay, now is the time, we have a four-colour inkjet press’.

DD: You mentioned earlier about pulling out of digital and web offset. Looking back, do you regret that the company pulled out of digital?
JR: Well, I try to never look back – except to learn. I don’t want to say if I regret it or not, but we cannot ignore that digital printing will become more important to the industry than it was in the past. We enjoy by far the biggest worldwide sales network in the printing industry and we now have substantial experience with OEM [original equipment manufacturer] products. Heidelberg was not very open to these propositions 10 years ago; we were just selling Heidelberg, but we will certainly sell more products through our channels in the future – these channels are under utilised and why not sell digital devices?

DD: Do you mean OEM digital devices from other manufacturers?
JR: OEM or even original branded, why not?

DD: Are you looking at any particular partners?
JR: Well, I could now name them all, but no, I cannot give you names. But I’m pretty sure we will enter this arena.

DD: Do you already sell some [digital kit from other manufacturers] in other countries?
JR: We are just about to start, but it’s too early to talk about the details.

AB: What advice would you give to printers to help them come through the current economic crisis?
JR: Yesterday I was asked the same question and I had an answer, today I’m hesitant. Everybody is in a different position and you have to analyse your position carefully before you give an answer to that. There is a plurality of ideas on how to cope with the crisis. It’s hard to be general, but be swift in your actions is the key one.

DD: I know it’s difficult for anyone to predict what is going to happen, but do you think the worst is over as far as the economy goes?
JR: Yesterday morning I opened a newspaper that said Austria might go bankrupt next year. But then in the afternoon I had a phone call from China saying that the market is picking up. I don’t have a clue, but I don’t think we have turned the corner yet, I think things will get worse in the summer.

DD: You mentioned that there will be fewer print companies when we come out of the recession, but what kind of ‘shape’ do you think the industry will be in then and what will be the major opportunities for printers in two or three years time?
JR:  There will be a structural change in the direction that the medium-sized printers will form a substantially smaller percentage of the industry in two or three year’s time. The big ones will grow and the small ones will maintain profitable niches, offering special services or servicing local business mostly. The medium-sized printers, I think, will either shrink or grow by consolidation. So this hourglass effect will happen: the industry will no longer be a pyramid – it will be an hourglass, more larger printers and smaller printers and the medium-sized printers will thin out.

DD: You have mentioned China, obviously Heidelberg has an assembly operation out there – how is that going, is it expanding?
JR: It’s expanding. We’re going to start to ship the first 40-in press by the summer, and then we will have all three formats manufactured there by the end of the summer.

DD: When you say ‘manufacture’, in the past Heidelberg was always very careful to say ‘assemble’. Does that mean that you’re now sourcing parts locally?
JR: Well, yes it’s assembly, but we are growing the local content as much as we can. We attracted some major European manufacturers, who are on the necessary quality level, to go to China too, and in the course of that happening our localised content of the presses will certainly go beyond the 50% mark in the not too distant future. In folders we are already at 80%.

DD: And the machines are all still destined for the local market?
JR: Well, we have sold a number of folders outside of China already, so never say never.

DD: Were the folders destined for Europe?
JR: No, they stayed in Asia.

DD: Obviously the company is pushing to cut costs, does this mean that you’re considering moving any European production to China or are you still focused on Germany being your manufacturing base?
JR: If you look at the scale of production in China, then the importance of it is often over-estimated. What we plan to manufacture in China is around 10% of our total volume of products. I could not imagine, with all the logistics required for customers’ machines and the special configurations that are needed, that in the foreseeable future we would move even half of our production to China. I cannot predict what will happen 30 years from now, but for the near future I can predict it [the Chinese operation’s output] will stay as a small percentage of standardised machines.

DD: Do you regard the rise of Chinese press manufacturers a long-term threat to Heidelberg.
JR: It’s hard to judge. Let’s just say, based on what we’ve seen so far, in terms of high technology they still have to master some challenges.

AB: One final question: where do you see Heidelberg in the next 10 years? A software company? A consultancy?
JR: No, Heidelberg will become more of a partner of its customers. I think in 10 years that half of our revenue will come from consumables and services, which would help us considerably in going through these economic cycles. We will certainly sell more presses, folders and platesetters and digital. By the way, please don’t write the headline that ‘Heidelberg will go digital now’ because it’s just too early – we’re starting some niches but that is all. Over the next 10 years the identity of Heidelberg will still be centered around the XL style presses, that much is sure.

To read the full interview transcript, click here

CV Jürgen Rautert

1958 Born in Frankfurt

1977 Graduated in mechanical engineering at the Technical University of Darmstadt

1984 Scientist in machine elements and acoustics at the Technical University of Darmstadt

1990 Doctorate at the Technical University of Darmstadt

February 1990 Joined Heidelberg, Measurement and Computing Technology

1991 Project manager ‘development of the Speedmaster SM 52 series’

1996 Overall responsibility for product development of all small- and medium-format sheetfed offset presses

1997 Head of development of the Speedmaster business unit

April 1999 Head of the Speedmaster business unit

April 2000 Head of the Sheetfed business unit

June 2001 Head of solution center postpress

March 2004 Head of postpress, head of research and development and production

July 2004 Member of the management board, responsible for engineering and manufacturing

November 2006 Member of the management board, responsible for products, engineering and manufacturing
 
July 2008 Member of the management board, responsible for markets