This is the full interview transcript, to read the abridged magazine version, click here.
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 (DD): Let’s start with the big question. There’s a lot of speculation in the German national press that Heidelberg is actively looking for investors, something that company has denied. What is the root cause of the rumours?
Jürgen Rautert (JR): There is no doubt that if you look at the Heidelberg equity situation, we had a different [debt to equity] ratio 10 years ago than we do today. We have some difficult times ahead. The ironic thing is that in the past, we have been accused by the analysts that our debt-to-equity ratio was unacceptable for our shareholders. Now we are at market level.
We are now in the position that the market and analysts wanted us to be in. Of course, in a downturn, that means you need to look more carefully at your situation. 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 just sit here and this triggers rumours that there is some activity regarding talking to potential investors.
DD: What is your financial position then, 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 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 system will not work as it worked before.
With due respect to the financial markets, they have led the world into a new kind of financial crisis that all the global economies will have to pay for now and it will lead to a very interesting redistribution of money. It won’t be to the benefit of the ‘real’ industries [manufacturing]; they will suffer. And we are all suffering more or less in the same way. There are not many that will not except those with recurring incomes like [providers] of food and basic household items.
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. Is that it now for job cuts? Is there no more ‘fat’ to trim?
JR: I think that’s it now. You should know that if you look where our staff are distributed. For example, we have around 5,500 people in service, and there we will take out very few 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 too, as sales are moving slower, and administration – where we will cut the most – and also back-office functions. The operational part of the business will be far less affected than the back-office functions.
Andrea Bötel (AB): When we talk about suffering and the financial situation worldwide, when we talk about our industry and technology, both machinery manufacturers and printers themselves, there’s clearly a very rapid change occurring within the sector. What is Heidelberg’s attitude towards the change in the industry regarding new business opportunities? Is there a change in your core business opportunities?
JR: Well, actually there won’t be that much of a change of strategy. What we have repeatedly said in recent years was that the future belongs to what we call the ‘Prinected’ printers. The printers that have organised themselves in an industrialised manner, which know their cost base precisely and which produce accurate quotes, and are fast on job turnarounds. For example, turnaround times of 24 hours are not unusual these days, but many ‘normal’ printers can’t cope with that. So the information age and the change in customers’ expectations regarding delivery times and transparency is something we have been preaching since Drupa 2000 – that the only one that is going to survive long term is the totally integrated print shop with integrated workflow solutions. I’m starting to hear the same thing from customers. So [while] there is no change in strategy, maybe the market penetration with those solutions will speed up.
In terms of technology – handling paper and putting ink on it – I think the industry has seen tremendous progress in terms of productivity. In a situation where there is already overcapacity, of course this creates opportunities for those [printers] that are still able to invest or have invested recently. But it also creates some major challenges for those that have not.
I think we will see some major restructuring in the industry. After this downturn, depending on how long it takes, we will see fewer printers and those that remain will be better organised, better integrated and they will work ‘beyond print’ and will offer additional services such as using the internet the same way they use print. There already operations like these, but I think now they will become the norm. Ten years ago, these companies were the early adopters of these new technologies and now they will become mainstream. Beyond that, of course there is still an amount of variable printing around and there’s no doubt digital presses have reached a level of reliability and quality that there are really applicable to daily business and depending on the individual geographical market, they will reach a higher or lower level of market penetration.
In the US, we are seeing quite a lot of digital presses being installed in recent years and eating into our A3/B3 market, because there is a lot of personalised marketing. [The same is true] in the UK… but in continental Europe [there is] very little. This is because of more concerns in terms of privacy and data protection. And on a worldwide level, if you look at production capacity: there was an article recently by Andy Tribute with bar graphs [on global production capacity] and I have to say that our data is very different and deviates by a factor of two in favour of offset and if you put production data in behind, there is a deviation of factor 20. So it clearly depends on what perspective you take and that’s why I’m pretty relaxed [about the threat of digital].
There is a [financial] crisis and there’s no doubt it’s not a regular crisis, like those that have come before. It is more severe. But I don’t see that there will be disruptive change in terms of industry structures.
DD: Do you think there will disruptive changes regarding the German press manufacturers? For example, in the future do you think there will still be three press manufacturers?
JR: It depends if you 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. There are so many assets involved that even if there is a long period of suffering, closing it down is extremely costly, especially in countries like Germany and France and some others, so I consider it rather unlikely that one will disappear.
DD: But surely these historic times we are in 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 with the Japanese manufacturers. 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. The windfall profits of the favourable exchange rates [they have benefited from since 2000] have not forced them to optimise their production [like the European manufacturers].
AB: You say that there will be fewer printers, and those that remain will be more productive, so does that mean you believe you will be selling fewer but more productive machines? And in the same breath, you say that you want to become more of a service business and focus more on consumables, such as plates and inks. What is your focus in terms of service for your customers if you will be selling fewer machines, but you want to grow in the service arena, what can your customers expect from you?
JR: There are two many answers for just one question. Let me start with [your statement that] we sell fewer machines: over the past five years, we have sold more machines in Germany than we could have ever dreamed of. And I saw in a recent study that Germany has gained a substantial market share in European printing in terms of print volume; this is one of the reasons we have sold so many machines here. As an example, Germany has doubled its output of folded carton print. If a similar effect has taken place in commercial print, where the UK has certainly a stronger position relative to the carton industry here in Germany, then this is one reason why in Germany – and I feel your question is a focused on Germany – we have sold so many machines. And if the competitive position here for German printers [stabilises then] I’m not sure I agree we will actually sell fewer machines [in Germany]. What we certainly won’t do is sell less value. Take the XL 105 long perfector. We have a number of these already running in the UK and because, for whatever reasons, the UK is the world centre for long perfectors. Some of these printers are printing 70m sheets on a 10-colour perfector press in one year. Of course, these machines are not cheap, but even in the economic downturn we have not seen a decline in our [press] prices. We are quite stubborn on that and we have no intention of making a market where these is no market simply by cutting prices.
DD: Although in the same way the yen/euro rate is good for you, surely the pound/euro rate is not so good for you in the UK?
JR: That’s true, and that’s why our sales in the UK are suffering.
DD: But are you saying that sales in the UK are falling primarily because of the exchange rate?
JR: Yes. Last summer our sales in the UK were still strong. And it all happened in six weeks from October. But getting back to Andrea’s question: even in Germany the volume might not drop, except due to the struggling world economy. But taking that it account, relatively German sales will not drop and then there are all the emerging economies. I know it’s not news, but we still expect growth in these areas.
As I mentioned, China seems to showing some early ‘spring’ signs of recovery. Sales in China are now picking up a little. As to whether this will last, I have no idea. You also mentioned service, and right now service is one of most important USPs in our portfolio compared with our competitors, certainly in terms of economy of scale. We are big enough to cover the globe with service technicians. We have almost 5,000 service staff worldwide and we have seen no decline at all, and I’m looking almost weekly at the service figures and trying to see if there is a decline in service in the same way as there is in press sales. There is none.
I do expect a moderate decline, but since [chief executive] Bernhard Schreier said two years ago that service should be a more important part of Heidelberg, it became pretty clear that our share of the addressable market to service our own machines and maybe even other machines, was unacceptable [too low]. I won’t use precise figures, but if you look at the number of units we have sold since 1990, assuming that the maximum press life is 20 years, then we have we have installed somewhere around 230,000/240,000 units. Of those units we sold in the past three years, [in terms of service] obviously we have a market share of around 100%, but if we look at machines that are, say, seven years old then our market share is very low.
In the past, we kind of ignored some of the potential for the service [business], but we have stopped ignoring that. So the market we could offer service to is actually multiples of the [size of the] market we are currently servicing right now. And if I take that against the decline of total volume of the decline [of new press sales], then I’m pretty optimistic that we can grow the market share of our service business, which again is to the benefit of our customers because we can keep them all running and make sure our dispatch times stay the shortest in the industry.
Next topic, consumables, if you exclude paper, and we have clearly said that are not going in to that, then our market share on a worldwide basis is a mere 3%, although it is hard to measure. But then in markets like Canada, we have a market share of 50% in pressroom chemicals, plates, blankets and inks. [To grow our worldwide share], we have recently made a number of small acquisitions, basically buying know-how. We bought a company in Denmark that had a guy who was very knowledgeable in consumables. We also bought two small companies here in Germany, one which specialised in ink mixing and another consumables specialist and we devoted management attention to this area and we are currently negotiating with every one of our major consumables suppliers and changing their structures over to our structures and we are growing rapidly in the consumables sector.
If you look at the value of the consumables that are used over the life of a press [at one company], let’s say over seven or eight years. [For] a €2m 10-colour perfector, just in average use of, say, 35m impressions a year, [the printer] will probably consume around €1m to €2m worth of plates over that seven or eight years, he may use around the same value of inks, depending on what he is printing, say €400,000 in service, another €500,000 for rollers, blankets, dampening solution and other items. Over the period of time that a printer owns a press, he will use a multiple of the value of the press just in consumables, not including paper. If you look at the margins we make on a press and the margins we make on consumables, which I can’t reveal, then you will see that it’s a very tempting idea.
DD: Just following on from that, do you mean that you’re considering offering servicing to other manufacturers presses?
JR: I wouldn’t exclude that.
DD: That’s interesting, there is a feeling in the market that, with the volume of unsold presses you have in stock, 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, which is not really ready to buy, and damage our price levels. We are still focused on a long-term future, not only for our own advantage but for the greater good of the entire industry food chain [i.e. printers] – there’s nothing more stupid than killing [printers’] prices and our industry doesn’t have a very good track record in that respect. Our customers are suffering badly from too many ‘desperate’ prices and we will avoid playing that game, although, of course, we 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. But there are other concepts that have similar effects at the end of the day and there are more creative leasing options available, especially in the folding carton industry, which has a pretty stable business and leasing companies have some pretty creative leasing plans so that the machines are not owned by the customer and not by Heidelberg. As we don’t want the [debt] on our books, they are actually leased monthly to a folding carton printer and I suppose in some ways this is a kind of click-charge, and the lease can include service and spare parts [like a company car]. The contract would have a fixed term, after which the printer can get new equipment. This already happens. But a click charge like in the digital world, I don’t see this happening.
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 consumable sales.
JR: You mean that we sell a printer a lump of cast iron [a press] 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.
But we have to remember that there’s always the component of selling something and generating EBIT (Earnings Before Interest and Tax) and there’s always the component of generating cash and cash these days is the short resource and in terms of cash models like you mentioned are not particularly favourable [for manufacturers].
AB: In Germany, the sales of Ryobi and Komori are increasing, and they have both opened offices in Germany. How do you see that developing?
JR: Yesterday I had a phone call from India saying that we had won over a Mitsubishi, which was already sold. I’m not concerned. As I mentioned earlier, we have the windfall benefit of the [strength] of the yen and these offices were planned before that. As far as I know, we haven’t lost any sales to Komori, so somebody else must have lost if there are any sales.
AB: A German printer has complained to me that the requirements of his clients change faster than the life of a press, which is a considerable investment. As a result, he is concerned that he might invest in a press now that is the wrong configuration for what he will need in three years’ time. What can he do?
JR: If you look at the total cost of running a print shop, the capital expenditure of investing in a new press is not that large a proportion Sure, €2m or €3m is a lot of money, but don’t forget that if the press is fully loaded with work (like the UK printer that prints 70m impressions per year on one press), he could have a revenue of €14m-15m in the first year and a conservative gross margin of 20% then he produced the equivalent value of the press in the first year in gross margin.
Yes, it looks like a lot of money [to buy the press], but it generates a lot of sales as well. So I would not completely buy in to that [printer’s] statement. After three years, the press is easily paid for in margins. In terms of flexibility then yes, if you buy a four-colour straight press without coater and then your customers want coating, you’re stuck.
But there is so much flexibility built into presses today. You can have a coater, you can have a perfecting press, you can retrofit cold-foiling, inline-sheeting, even Inpress Control (our latest colour management tool). You can even retrofit dryers if you plan carefully. For example, we can build our presses with UV preparation on request, so you don’t need to pay the substantial extra money for UV when you order the press, but you can pay a little bit for UV preparation then after five years step up to UV if you want. We always try to be flexible with most of the accessories, the only area where we can’t be flexible is in the unit configuration because this makes no sense as after three or four years there are too many changes and it’s unlikely that the new units would still ‘fit’ with the old.
A printer should always think very carefully [before buying a press] and here I recommend some form of consultancy, either by us or someone else. We are doing that more and more. You can buy driven by the fantastic order that fills 20% of your capacity, that leads you to want, for example, that new eight-colour yesterday. We have those types of requests – please can I have a new press in four weeks – and these days, fortunately, it’s possible, but a year it would have been tough. [Some printers] buy almost spontaneously, but they could also buy strategically. So they might say; I need a five-colour plus coater – which is one of the most flexible configurations and not that expensive – and a perfector with a reel sheeter. What I would say to this printer, and I cannot say that this is not a valid request, [is that] there are [alternative] means to cope with this challenge. For example, we can analyse their entire order structure over the year, even two years. The better the MIS that the customer is running, the simpler it is and then we can analyse which portfolio of products are the most suitable. Normally we would put Heidelberg products in, but, of course, it works with others, theoretically.
If the printer then takes this information and plans strategically, they could also add in different products [they would like to produce] and different volumes to see whether it changes the best configuration of products… We can make our customers winners, and perhaps in the current climate you could say we make our customers survivors. Of course, at the end of the day, it’s also a selfish statement, because if our customers survive we’re going to survive.
DD: Still talking about presses, when you launched the large-format machines at Drupa you stated that you were looking for 25% market share within the next three years, has the economy changed that target now?
JR: In terms of market share, that goal has not changed at all and, in fact we have reached it already.
DD: In terms of new installations rather than installed base presumably?
JR: Yes, of course. We are pretty happy with the situation in very large format, well could be happier in terms of the economy, but regarding market share we have already fulfilled our targets.
AB: Can you confirm the number of machines? I believe it to be 18 VLF machines sold.
JR: It’s more than that. If you consider like for like, in terms of what formats we sell against our rivals, apples for apples if you like, then the market share is even higher. But the 25% we aimed for was on the total market size against the number of machines we sold, and in that respect we are where we wanted to be.
AB: Is this in the packaging sector only or commercial too?
JR: Mainly packaging, but our first commercial VLF machine is now starting up and it will not be that long before the first perfecting VLF will go onto the market. That is the [prototype] machine that you saw at the pre-Drupa press conference, but which was not running at that time.
DD: Speaking of exhibitions, Heidelberg UK is not exhibiting at Northprint (a UK show) and you didn’t exhibit at Grafitalia – have you looked at how you’re going to use exhibitions in the future?
JR: Yes. To phrase it bluntly, I hate the [amount of] money we spend at exhibitions. It is too much and we will and have cut that substantially. Drupa is something very special, so it’s hard to reduce [our spend there] but we have drastically reduced in the US and we will reduce at Ipex, but we will be there. For example, there are three major fairs in China and we only attend two and also we reduced the cost. 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 think it’s not fair to spend the kind of money were spending 10 years ago because in the end the customer pays and they already have many sources of information. We have excellent showrooms around the world, I think there is a trend away from fairs for every manufacturer. 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 big ones will continue, but the medium-sized fairs will disappear from the industry – that’s my prediction.
AB: You have the biggest distribution network in the world compared with your rivals. Will you maintain this structure?
JR: Definitely. As I said, the service business has not dropped at all so there’s no reason to scale it down. Yes we need a few less engineers right now for installations, but we try to transfer them elsewhere. We will maintain the same level of service for our customers in the hard times as we did in the easier times.
DD: Do you maintain the same approach in R&D? Are you spending the same amount or have you cut that back? For example, are we any closer to the launch of the B1 Anicolor?
JR: We are spending less in R&D, of course, but to the consternation of our analysts, we are still spending more than our competitors. We continue to spend around 6% of our sales of R&D [but as sales have fallen, so has the absolute amount of money spent on R&D]. When we stepped out of digital and web in 2004 we said OK, now we need a real R&D push and we’ve spent almost a €1bn since 2004, which was completed by 2008 so when we cut down R&D now it is not going to hurt customers. Everything that we did since 2004 is being rolled out now.
As far as Anicolor, by chance I am reading a book called Crossing the Chasm: marketing and selling disruptive products to mainstream customers. We talked about [Anicolor] three years ago at Ipex, we have now sold more Anicolor presses than anilox presses have been sold in any other technologies and they make up to one third of our B3 business. I read recently that one of our UK customers [ABC Print in Herefordshire] claimed had saved 1.5m sheets of waste paper since installing Anicolor so, of course, it will continue into larger formats.
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?
JR: We’ve 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 light of the €220m spend on R&D the year before, then this is a significant cut. But [in the recent past] we’ve invested heavily in new platform development, such as the XL family of presses and the new die-cutters, and these platform developments are very expensive. Now with the platform developments, by and large, finished for now, I would say that €150m is still a lot of money to spend on R&D.
AB: Are still developing the Linopress inkjet technology?
JR: Yes, we have sold the first devices now… not for ink on flat paper but in niches such as for blister and special packaging and other applications in the pharmaceutical industry, labels, 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.
AB: You have sold the first machines?
JR: Yes we have sold some, outside of [the commercial print] industry. I don’t want to kill this baby by calling it Heidelberg’s re-entry into digital, and then two years later somebody asks OK, where’s the €200m revenue from it now? and I have to answer it’s just €20m or €30m, albeit a very profitable €20m or €30m. We’re selling it to the packaging industry beyond printing, but 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 OK now is the time, we have a four-colour inkjet press.
DD: Is digital, or the combination of digital and offset, one of your key R&D focuses now then?
JR: We will continue in that direction. In our workflow we have had Digital Print Manager for quite some time and will continue to make that more flexible and [with] inkjet we have a number of people, but the other directions [for R&D] are more or less the same: Anicolor… we will still work to increase the productivity of our perfecting products and colour management, where we were started with CPC in the ‘80s; ImageControl in the ‘90s and now AxisControl and so on and now we have InpressControl which has been a tremendous success. I think this is the future of offset; it’s a closed-loop process where almost all of the parameters are set automatically.
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 have generated quite a number of experiences with OEM [original equipment manufacturer] products selling, Heidelberg was not very open to these propositions 10 years ago, we were just selling Heidelberg, but we have now gained some experience and we will certainly sell more products through our channels in the future. These channels are underutilised and why not digital devices?
DD: 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 manufacturers] in other countries?
JR: We are just about into start. But it’s too early to talk about details.
AB: Does this include some kind of consultancy service you offer customers, where you say we supply digital devices and offset presses and combine your business model to advise and support your customers?
JR: If the customer asks for that we will offer it. The Heidelberg worldwide network is an interesting animal, and I’m just starting to get to know it more intimately since I took over sales last summer. It is directed from here [Germany], but there are a number of very interesting initiatives around the world, because people [who head up these operations] feel like entrepreneurs. For example, somebody in Australia has to survive on his own because all of the people here are in bed when he calls. Of course, we have our business reviews and we send technicians, but these people have creative ideas, and what develops here and there [at these operations] and the different ‘flavours’ around the world of our consultancy projects [are interesting]. Some were just driven by analysing the [local] situation prior to sales or total cost of ownership and return on investment calculations and some were directed to help print shops become more productive once the machines were installed. Even without a sale, we can always help [a client] squeeze production and become more productive. [As a result of some of these projects] last summer I took a decision to pull one of the best guys from this network from Singapore to Heidelberg. [That has grown and] we are now 16 people sitting here in the HQ, controlling the heart of Heidelberg’s international consultants, who help customers with those requests. Advising them on whether they should invest in web-to-print, go digital, advising them on their product mix, how to increase their productivity and reduce waste, or advice on their distribution channels, or even if they should increase their sales force as a result of investing in new equipment.
It’s a portfolio of services that are offered by this worldwide network, with the heart here in Heidelberg and what we do in order to create synergies and change mindsets, which is a pretty interesting task. We invite people [the global consultants] every quarter for two weeks here at Heidelberg, where they develop the tools and we also create synergies among ourselves, because everyone has their own tools, which is a waste of time. Every time they come, they reduce their number of tools by a third and hopefully in a year or two, we will have 10 standard calculations to use worldwide.
There is another vision I have and I think I spoke about it earlier. You might know that 80% of our presses once they are sold are hooked up to the internet, and we almost never dispatch a service technician before downloading data from the press into our service dispatch centre, where it is analysed up front and we call back the customer to do some analysis by phone based on the press data and then dispatch the technician. As a result of this, the first time ‘fix rate’ tripled. It’s a tremendous help for us and the customer. Based on the same internet connection, provided the customer gives his consent, we can collect statistical data on job speeds, and when the workflow [used by the printer] is ours, we even know how difficult the job was in terms of trapping, tricky solids next to tricky screening and is there a shape of the image that is vulnerable to ghosting, we can even say how difficult the job was and what the substrate weight and size was – we know it all.
We are currently building a database that will enable us to say ‘this is the Gaussian distribution if you print a job of that difficulty in terms of speed and makeready times’, whatever you want to look at. And imagine if you had a database of not 1,000 jobs but 10m jobs in such a database, which is easily achievable – 3,000 jobs a year on a B1 press, 1,000 presses – it’s already 3m jobs and this will be the basis of a more scientific approach to our consultancy.
DD: You’ve already touched on it, but what exactly is it that you’re trying to do for your customers? Is it this kind of consultancy approach?
JR: It is the duty of all Heidelberg employers to make our customers winners. You can name 10, 20 or three parameters – but I have seven: printers need to run their shops by numbers, they need transparency; they need to have skilled people, so need to do something about training, so use PMA [Heidelberg’s Print Media Academy]; they need to ensure that the quality [of their work] is undisputed, they’re not paid for quality these days, but they’re in trouble if they miss it just for a single day; productivity; marketing – it’s not the printers that have the best technology that are the richest, it’s those that do the best marketing; environment – if you’re not green these days you’re in trouble and being green and saving money in print goes hand in hand; and last but not least, added value – do something different. As one German printer said, don’t let paper die flat, which means look beyond print. You could offer data services, warehousing, collection, distribution – the list is endless. Some print companies are even handling the entire marketing for larger companies based on web-to-print models.
AB: Can we summarise and say that you’ve changed your attitude from a machinery deliverer to a partner for your customers? You were a partner anyway, but it’s getting more and more down to the basics of the problems facing your customers.
JR: Yes you could say that.
AB: It’s a change in the culture of the company?
JR: Yes, absolutely.
AB: What would you give as advice to printers to help them come through the current economic crisis?
JR: Yesterday I was asked the same question and if 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. The only generalised answer I have is act swiftly, don’t lose time. If times are changing quickly then make sure your sales are set right and you are not caught off-guard by any situation. And you can’t act quick enough if the situations are moving as fast as they are happening now, but what then is the right direction? I’ve met printers that say, OK I don’t need [credit] because I have some equity, but I borrowed some money up front because in July or August, I will start ‘collecting’ print shops because they will be cheap to buy and other [firms] might need to downsize and restructure rapidly to get rid of equipment and, unfortunately, people [that] they can’t afford. Others might be considering partnering more smartly than they have before. There is a plurality of ideas on how to cope with the crisis, but it’s hard to be general – but be swift in your actions is the key one.
AB: What kind of potential do you think the workflow software business has? Is it like to outstrip your machinery sales in terms as a profit generator?
JR: Not in terms of the pure sales figures. Software is a nice little profitable business, but in terms of… Let me put it this way: you wouldn’t think about running your PC without an operating system.
AB: But this is more than just an operating system.
JR: That’s true, but you shouldn’t consider running a print business without an operating system and I call it workflow software. I think there is just no choice and I’m absolutely convinced that in the future in terms of the total integration – and there are nice pieces of software here and there from other vendors – but in terms of integration, I’m pretty confident that there is no other vendor that can offer this [level].
For the customer, the payback of the investment is shorter than for any other investment you can think of. We have a measured a couple of hundred installations now in terms of what is the payback time in terms of more capacity and lower costs and the average payback is under one year, sometimes only a few months. Worst case, two years.
However, there is one difficulty, Heidelberg can sell the software and if you buy consultancy, we might even be able to change minds, but if you want to reorganise your printshop and catapult it into the industrial age of print, it requires a lot of work with your people – a truly top-down/bottom-up intensive program to make sure that the software is not just used to only 10% of its potential, but really used.
Owners and managers tend to heavily underestimate the investment in people’s minds and skills you really need to boost your productivity. The software is just the enabler – training your people and motivating your people is the essence and this is why Heidelberg can not just sell Prinect and make everybody successful. It’s about implementing a lean manufacturing process, which you can buy consultancy for.
Just to give you one example: before 2005, for a five-year period, the productivity in our major plant in Wiesloch was growing at 1% or 2% per year and many people thought that ‘well after 20 years of optimization this is it, we are so close to the optimum that we can’t get any better any faster’. We said this can’t be true, we’re getting complacent, this is not right. We hired some consultants, it took us six months to find some that we trusted and in the next 12 months we invested almost €20m analysing and training. Since then, we have we had an annual rise in productivity of 5% year-on-year, every year – so you can do it. And if you look at the fact that Wiesloch was producing something in the area of €1bn-plus then 5% is a substantial amount of money and it easily paid back the €20m we spent. But for some people, it was pretty strange that we suddenly had groups of 20 or 30 people sitting in workshops for a week, but this what it takes – if you don’t get your people behind you, it will not happen. So getting back to your question, yes, Prinect is a very important tool, but without the printer wanting to change it will not do that much.
AB: Would you say this [lean manufacturing] is necessary to survive in the next 10 years?
JR: Yes. I could even phrase it more strongly: it’s almost a guarantee of non-survival if you don’t manufacture lean.
DD: As you’ve already mentioned, it’s difficult for anyone to predict what I going to happen, but do you think the worst is over as far as the economy goes?
JR: My opinion is changing every day. Yesterday morning, I opened a newspaper that said Austria might go bankrupt next year. So if you had asked me yesterday morning… but then in the afternoon I had a phone call from China saying that the market is picking up. I have no 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 mid-sized printers will be a substantially smaller percentage [of the industry] in two or three years’ 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 [of] bigger printers and smaller printers and the medium-sized printers will thin out.
DD: You’ve mentioned China. Obviously you have 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-inch 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. And a major way to do that is that we attracted some major European manufacturers, which are of the necessary quality level to go to China too, not only to supply us but supply others as well 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 size of production in China, then the importance of it is often a little bit overestimated. What we plan to produce in China is around 10% of our total volume [of products]. I could not imagine, with all the logistics required for customers’ machines and special configurations… I could not imagine that in the foreseeable future we would move even half of our production China. I cannot predict what will happen 30 years from now, but for the future I can predict I will say it will stay as a small percentage of standardised machines.
DD: Do you regard the rise of Chinese press manufacturers as 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.
DD: One final question, a couple of years ago I asked you if you were going to start a print company, how you would do it. You said then that you would buy a used B3 press, presumably Heidelberg, and focus on niche markets. What would your answer be now?
JR: These days I would say that I would buy an Anicolor.
DD: Of course, but would you still be a printer now? Do you think it’s an attractive industry to enter?
JR: Yes, I think so. It has certainly become a tougher place than it was a few years ago, but if you asked me personally then I would think if I had to make a choice that I’ve seen so many successful and unsuccessful business models [in print] that I would have a fair chance to avoid some mistakes.
AB: Where do you see Heidelberg in the next 10 years? A software company? A consultancy?
JR: No, I think you phrased it perfectly when you said that Heidelberg will become a partner of its customers. This will grow. 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.
DD: And digital?
JR: 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 presses, that much is sure.
CV: Jürgen Rautert
Member of the Management Board, responsible for Markets
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
