Heidelberg has reported an uptick in its first-half EBITDA boosted by the growth of its new subscription model, although its bottom line suffered from one-off costs.
Planned restructuring at the German manufacturer has racked up costs of €5m (£4.35m) in the first half of 2018/19, five times the spend in H1 2017/18, alongside the acquisition of post-press rival MBO and the partial repayment of a €55m high-yield corporate bond in July led to a dip in overall profit.
Breaking even in the same period last year, Heidelberg has today (8 November) reported a loss of €6m, though executives expressed confidence that a period of high spending would lead to payoff in the future as it continues with its 'digital transformation' programme.
EBITDA rose from €60m in H1 2017/18 to €62m this year. Assurances were issued to investors that targets for a “moderate increase in sales and ongoing efficiency improvements” by the end of the year remained on track.
With 20 contracts established on its subscription service, Heidelberg saw incoming orders boosted from €1.2bn to €1.3bn. It remains set on targets to reel in a further 10 contracts before the end of the year. Another 100 subscription contracts are anticipated in 2019/20.
According to a Heidelberg spokesman, there are currently 600 customers who have registered interest in the new subscription model, in which costs are based on paper usage and output rather than upfront machinery investment.
He said: “Through the subscription model we can help increase the productivity and income of our customers and this also benefits us by increasing print volumes. But it is a completely new billing system for us and is part of a wider cultural change at Heidelberg which will see us invest in a lot of new skills and people outside of production in the next three to five years.
“Our board always says that to build a new company it takes time. For example, we have incurred costs by paying back some of our bond this year, but it will bring our interest payments down next year. We aim to reach a point where we pay €20m interest annually.
“In the new Heidelberg, a big portion of our profits will come from the subscription model and another from our digital offering. There are external factors like Brexit, China and the US and the changing investor climate which we are monitoring, but we will also continue on our M&A path looking for new ways to increase our business.”
Heidelberg’s order backlog increased by 23% to €774m, which is hoped to pay off as further progress is made on subscriptions.
“The subscription model offers huge potential. It’s transforming the market and also our company. We’re continuing to drive the digital transformation at Heidelberg,” said chief executive Rainer Hundsdörfer.
While the results continue to signal a slip in the profitability of the company first indicated in its results for the first quarter, Hundsdörfer previously highlighted that Heidelberg’s sights were on year-end 2022, rather than the immediate future, with a targeted turnover increase to €3bn with an EBITDA around €250m-€300m and net profit after taxes of “at least” €100m in the next three years.
Chief financial officer Dirk Kaliebe said: “The trend in the order backlog will continue and it indicates that we will see recurring sales from these subscription contracts. We have the financial strength to facilitate our journey into the digital world.
“Our balanced financing framework also gives us the freedom to push ahead with new business models through targeted acquisitions. Our goals – both in the medium-term and for the current year – remain possible in our eyes.”
Next on the docket, the manufacturer is gearing up to the opening of a new innovation centre at its base in Wiesloch-Walldorf, Germany, in mid-December.