090723 agm 0809 speech schreier

8/14/2019 090723 Agm 0809 Speech Schreier

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Heidelberger Druckmaschinen AG

Chairman of the Supervisory Board: Dr. Mark Wssner

Management Board: Bernhard Schreier, Vorsitzender Dirk Kaliebe Stephan Plenz Dr. Jrgen Rautert

Principal place of business: Heidelberg Amtsgericht Mannheim (competent registry court) Commercial Register - HRB 330004 VAT Number DE 143455661

Commerzbank AG Heidelberg (BLZ 672 400 39) Kto 192264001 IBAN: DE32 6724 0039 0192 2640 01 BIC: COBADEFF672

Dresdner Bank AG Heidelberg (BLZ 672 800 51) Kto 4 625 109 IBAN: DE98 6728 0051 0462 5109 00 BIC: DRESDEFF672

Not to be released until the speech starts!

Speech for the Annual General Meeting of

Heidelberger Druckmaschinen AG

Thursday, July 23, 2009

Congress Center Rosengarten, Mannheim

Bernhard Schreier

Chief Executive Officer

The spoken word applies!


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Sehr geehrte Aktionrinnen und Aktionre,

Shareholders,

Shareholders representatives,

Representatives of the media,

Ladies and Gentlemen,

On behalf of the Management Board of Heidelberger Druckmaschinen AG, I wouldlike to welcome you to our Annual General Meeting here in Mannheim where we will

be reporting on how the company has fared during financial year 2008/2009.

Market developments

Since our previous Annual General Meeting a year ago, there have been major

changes in the world, the world of business, the world of the printing press industry,

and thus the world of Heidelberg. For months, there has been nothing but doom and

gloom in the media. Even though we have now just about had our fill of these

depressing reports, I would like to once again briefly outline the macroeconomic

developments over the past twelve months. Without understanding these

developments, it is virtually impossible to correctly assess the current situation at

Heidelberg.

The global economy is experiencing its worst crisis since the Second World War,

and the capital goods industry its worst since the Great Depression 80 years ago.

Here in Germany our domestic market and also our single most important market

it is predicted that GDP will shrink by six percent. In other words, the volume of

goods and services will be down EUR 150 billion on a year ago. We are also seeing

similarly sharp declines in other industrialized nations.

The impact of these dramatic developments has been particularly pronounced on

Germanys strongly export-oriented mechanical engineering companies. Incoming

orders for the period January to May 2009 were nearly 50 percent down on the


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same period the previous year and, according to the VDMA the German

Engineering Federation we are still not through the worst.

This unprecedented collapse of the economy has hit the printing industry and thus

press manufacturers especially hard. The amount spent by the advertising industry

has a major impact on business at the mostly small and medium-sized printshops.

This industry accounts for around 60 percent of their capacity utilization and

earnings and therefore has a considerable influence on their investment behavior. In

times of crisis, however, this industrys spending falls almost like a law of nature

and during this latest crisis it has plummeted. A decline in advertising expenditure of

between five and eight percent is expected for the current year.

As a result, printshops are currently in worse spirits than for many a year, and this

situation is not unique to Germany. According to a survey by the BVDM the

German Printing and Media Industries Federation business expectations are

currently a little brighter, but projected figures are still clearly in the red. This means

that far more printshops can still expect business to worsen rather than improve

over the next six months.

The inevitable consequence of this is that printshops are extremely reluctant to

order new equipment. The situation being seen in Germany is also mirrored in other

countries. Whats more, the financial crisis has made banks review the terms

applying to loans and credit lines, in particular for small and medium-sized

companies and thus for many printshops. As a result, some printshops would still

like to invest but are unable to obtain the necessary funds from their bank.

Current situation / results for financial year 2008/2009

Chart: Significant decline in orders

What does this mean for Heidelberg? Business was satisfactory up to the summer

of 2008. We did of course receive a boost from drupa, the leading industry trade fair

that is held every four years and took place at the end of May and beginning of June

2008, once again bringing trade visitors from around the world to Dsseldorf. This


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event gave us another opportunity to emphasize our excellent position in the

industry.

As you may recall, the second quarter of the financial year brought one of the critical

points of the financial crisis the collapse of U.S. investment bank Lehman Brothers

and we started to become very aware of our customers reluctance to invest and a

downturn in business.

As for quarters three and four, our customers slammed the brakes down hard on

investments. Taking the average for the two quarters, we only processed orders

worth EUR 520 million. This is the lowest level for over ten years and represents an

unprecedented freefall over these two quarters. By way of comparison, the average

figure for incoming orders during the same quarters the previous year was still

around EUR 940 million, that is to say almost twice as high.

Chart: Global economic crisis hits all markets

For the financial year as a whole, this means that incoming orders slumped by 20percent to EUR 2.91 billion. In the second half of the financial year, customers in

virtually all markets and regions put their planned investments on ice. Most of our

largest and most important markets were particularly hard hit. Order levels in the

U.S., the United Kingdom, and China plummeted by up to 35 percent compared to

the previous year and the sole reason for there only being a moderate decline of 6

percent in Germany was the fact that we were able to benefit more from orders

placed at drupa. Only a handful of smaller markets such as Switzerland, Turkey,

and the Czech Republic bucked the negative trend and helped slightly reduce theoverall decline. The slump affected both our Press and Postpress divisions to the

same extent.

Chart: Divisions

The Press division our largest sector covers all prepress, sheetfed offset, and

flexographic printing products, and our web offset sales activities. The extremely

unfavorable underlying conditions for our customers are the sole cause of results

being down on the previous year. As things stand, our market share has not


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decreased on any market. An important factor for the large-format segment, which

we entered only in the year under review, is that we now have reference presses in

our key target regions and customers are seeing for themselves just how well they

perform.

The Postpress division covers all postpress operations. The underlying economic

conditions have also hit postpress business hard, but one positive aspect has been

the comparatively high demand from packaging printshops for our die-cutters.

Incoming orders were also up for adhesive binders, thanks in part to new and

improved products.

Our comprehensive service, the consumables portfolio, our Prinect workflow

software, and our remarketed equipment business cover both the press and

postpress sectors.

We have been successful in expanding our consumables and services business,

which is relatively unaffected by economic cycles. Despite the crisis, we were able

to maintain sales of both consumables and services at a steady level and evenfurther expanded our consumables business through acquisitions. Both incoming

orders and sales were up for these two areas of business, reaching a level of just

under EUR 740 million compared to around EUR 700 million in the previous year. In

the year under review, consumables alone generated sales of around EUR 300

million compared with approximately EUR 280 million the previous year and thus

achieved a market share of just under four percent.

We have grouped together our sales financing services in the Financial Servicesdivision.

Chart: Financial year 2008/2009

As a result of the much lower volume of orders, the order backlog at the end of the

financial year was also down on the previous year, clearly reflecting the way

business developed over the financial year under review. After the first six months,

as at September 30, 2008, it was still on a par with the previous year, at around

EUR 1.2 billion. However, in the second half of the financial year, ending on March


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31, 2009, the marked reluctance to invest almost halved it to just EUR 650 million.

At this point, we had orders to last us for the equivalent of 2.6 months, compared

with 2.9 months the previous year.

Inevitably, it was a similar story for sales as for incoming orders. At roughly EUR 3

billion, they were 18 percent down on the previous year and at their lowest level for

five years. There was an above-average decline in incoming orders and sales in the

North America, Eastern Europe, and Asia Pacific regions, but a comparatively

moderate one in the Europe, Middle East, and Africa region, which saw the

strongest sales.

The proportion of revenue from emerging markets remained static at around 35

percent. During the course of the financial crisis, it has been even more difficult to

obtain loans on these markets than in industrialized nations. Despite this, we are still

convinced that, in the medium term, the emerging markets offer greater growth

potential for the print media industry than the traditional industrialized nations.

Chart: Operating position

Although we were very quick to introduce cost-cutting measures which I will go

into in more detail later the very marked decreases in sales also had a hugely

adverse effect on the result recorded by Heidelberg. Excluding restructuring costs,

the operating result based on EBIT was EUR -49 million. Including restructuring

costs, the operating loss was EUR -228 million, compared with an operating profit of

EUR 268 million the previous year. This development and in particular the

dimensions the crisis subsequently took on were, Ladies and Gentlemen,unforeseeable.

In addition to the sharp drop in sales, a number of other factors weighed heavily on

the result. Chief among these were the high energy and raw material prices at the

beginning of the financial year, the cost of the series launch of our very large format

presses, and at least during some phases unfavorable exchange rate

movements.


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Given the extremely difficult underlying conditions, the refinancing requirements at

Heidelberg also rose sharply in the financial year under review. This was a further

factor in the worsening of the financial result from EUR -69 million to EUR -119

million. The end result was a pre-tax loss of EUR -347 million, compared to a pre-tax

profit of EUR 199 million the previous year. The company recorded a net loss of

EUR -249 million, also substantially down on the previous years net profit of EUR

142 million.

Our weak business situation and high outflow of funds in the first half of the financial

year affected the free cashflow, too. Following a positive figure of EUR 215 million

the previous year, it fell into the red by EUR 201 million. In the second half of the

financial year, however, the cost-cutting measures introduced helped boost the

inflow of funds.

Chart: Balance sheet equity and liabilities

Due to our poor business performance and the negative effects of business

operations, our financial liabilities also rose sharply. At the end of the financial year,they were EUR 216 million up on the previous year at EUR 760 million. As a result,

our net financial debt the difference between our financial liabilities and our liquid

assets grew significantly from EUR 402 million to EUR 681 million.

Chart: Balance sheet assets

Details on the individual items on the balance sheet and the profit and loss account

can be found in our Annual Report.

Based on the figures I have outlined and the short-term business prospects, the

Management Board and the Supervisory Board feel it is inappropriate to propose

paying a dividend for the financial year just closed. We need to transfer a large part

of the retained earnings to revenue reserves and carry forward the remaining

amount. This is the logical course of action given the poor underlying economic

conditions and will help avoid placing a further strain on equity. Having weighed

these concerns against the interests of our shareholders and the payment of a


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dividend, we believe it is vital that earnings this year are not distributed and trust that

you will understand the reasons behind this decision.

Market positioning

Ladies and Gentlemen, the past financial year was without doubt one of the worst in

the more than 150-year history of Heidelberg if not the worst. And let me say

straight away that things will not get much easier in the current financial year.

I am reluctant to paint a completely black picture, though. There are some signs,

albeit small ones, of a light at the end of the tunnel. In April, May, and June,

incoming orders stabilized at the low level of the previous two quarters. It is currently

difficult to judge whether this is already a sign of the tide turning. I personally prefer

to take a cautious approach, all the more since higher incoming orders were mainly

down to a regional increase resulting from Mays China Print trade fair in Beijing.

This trade fair is the most important one for us in the region and we were very happy

with how it went. The downturn appears to have halted for the time being in Chinaand our business there is picking up again. This is not sufficient to compensate for

the decline in Europe and Asia, though.

A great deal has changed over the past twelve months. One thing has not changed,

though. Heidelberg is still setting milestones on the press market. Equipment Made

by Heidelberg still enjoys an excellent reputation in 170 countries around the globe.

Despite the extremely difficult conditions, we have succeeded in maintaining our

market share. One contributory factor has been our new very large format pressesfor sheet widths of 145 and 162 centimeters, which we unveiled last year at drupa.

We have sold presses in this format class which is ideal for packaging printing

on all the key markets, including China.

Critics say that Heidelberg has fared worse than its competitors over the past

financial year. This is only true if looked at on a superficial level and is rather like

comparing apples with pears. We are the only one of the big companies in the

sector three of which are based in southern Germany to focus exclusively on

sheetfed offset presses. Unfortunately, this type of press is hit very hard and very


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quickly by economic downturns due to its great dependence on commercial printing

and the advertising market. Web offset presses, on the other hand, such as our

competitors also offer, take some time to feel the effects of a downturn.

Be that as it may, we too are critical of our performance. We know that

developments over the past twelve months have resulted in us unsettling and

perhaps even angering a lot of people including our employees, our customers,

our suppliers, and last but not least our shareholders and owners. That is hardly

surprising and we understand their reaction. The Heidelberg share price is currently

around two-thirds down on the same time last year. That is totally unsatisfactory for

you and for me, too. One of our top priorities must therefore be to regain the trust of

the diverse groups with an interest in the company, its management, its business

model, and its shares.

New financing structure

Our new financing structure definitely plays a key role in this process. I would like to

stress one thing straight away. As soon as we saw that the financial crisis wasspreading to the real economy and would thus soon hit the print media industry, i.e.

in the summer of 2008, we focused our attention on possible cost-cutting measures

and our financing.

However, all these efforts proved inadequate in the face of the dramatic

developments on the markets including the financial markets. Lets make no

bones about it Heidelberg, like many other companies, fared worse and worse as

the months went by. Unfortunately, banks are now much more cautious aboutgranting loans than before for very different reasons. When extending credit lines,

they impose far greater demands in terms of creditworthiness but companies

naturally tend to be less creditworthy in times of crisis. The economy has been

caught up in this vicious circle for months, and yet virtually every company will get

into difficulties sooner or later without loans especially in times such as these.

Heidelberg is no exception but we have managed to overcome these difficulties

through a combination of our own efforts and help from the state.


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Chart: Planned financing structure

The aim of the new financial structure was to stabilize and restructure our credit

requirements under fundamentally different underlying economic conditions. As you

can imagine, an undertaking of this kind is especially difficult in times of crisis. We

were quick to enter into intensive talks with our banks based on a detailed financing

concept that essentially corresponded to the previous financing structure in its type,

scope, and term. Despite the difficult underlying conditions, we succeeded in

transforming the existing financing structure into a new structure and safeguarding

the Groups continued liquidity by securing loan pledges in principle from the banks.

The prerequisite for implementing this concept is that securities be provided as

stipulated by Economic Stimulus Package II.

The future financing structure, worth a total of EUR 1.4 billion, now runs over a

period of three years and originates from three sources. The first is a EUR 550

million loan with a 90 percent guarantee from the federal government and the states

of Baden-Wrttemberg and Brandenburg, the second a EUR 300 million loan from

the KfW the Reconstruction Loan Corporation and the third a EUR 550 millionsyndicated credit line. The federal and state pledges provide us with the framework

to bridge the current phase, at a time when it is extremely difficult to secure loans

within the financial system. The banks loan pledges, coupled with the federal and

state support, thus gives us a solid financial framework.

Heidelberg was one of the first companies in Germany to receive help from

Economic Stimulus Package II. The decisive factor was that we fully satisfied the

criteria for inclusion in this program. These criteria are very strict and clearly defined and I therefore feel it is important to run through them briefly again.

There are two main conditions to be met. Firstly, companies who wish to be

considered must have been healthy before the date deemed to mark the start of the

crisis July 1, 2008 and Heidelberg was. Secondly, only companies that are

competitive in principle and have positive prospects for the future are eligible and

Heidelberg does indeed have good prospects, Ladies and Gentlemen.


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I would like to add that the state has neither simply given us money nor subsidized

us at the taxpayers expense. The state guarantee and the indemnity against liability

under the KfW loan created the framework that enabled or if you prefer

facilitated our refinancing with our commercial banks. It goes without saying that we

are grateful for this help given the serious nature of the crisis, but a number of

defined criteria had to be met. We are not simply being given the guarantee and

indemnity, but are paying standard market charges.

It was no great surprise that our competitors did not exactly welcome this support.

Some even claimed it amounted to distortion of competition. This is most certainly

not the case, Ladies and Gentlemen. At the end of the day, little has changed in

terms of the overall financing volume.

Similarly, there are no grounds for assuming as some have that we will now

lower our prices. Why should we? The package has without doubt been a great help

in the current situation, but it has not made our financing any less expensive overall

quite the opposite in fact. For example, the convertible bond, which in all likelihood

will have to be paid back prematurely next spring and is currently subject to aninterest rate of 3 percent, is being replaced by the KfW loan, which has an interest

rate more than twice as high. The other loans are also certain to prove expensive.

This makes further compromises on price impossible. As you can see, any talk of

distortion of competition is nonsense!

The new financing structure is certainly not the solution to all our problems, Ladies

and Gentlemen, but to express it in metaphorical terms although the sea is still

rough, the cargo is now once again securely stowed and the ship remains on aneven keel.

Capital structure

Now that we have secured external financing, we can set about strengthening our

equity capital base again. In the year under review, the companys equity fell by

around EUR 400 million to EUR 796 million mainly due to the high net loss. As a

result, the equity ratio dropped from 34 to 25 percent a worrying development that

we are keen to turn around.


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This percentage is clearly too low and should be increased again to an appropriate

level in the medium term. In order to achieve this, we are open to discussions with

potential investors of any kind. The decisive factor to start with is not the form of

potential investors, but their strategic, long-term interest in Heidelberg I repeat:

strategic, long-term interest. The crucial requirement is thus that investors intend to

make a long-term commitment to Heidelberg probably like most of the

shareholders here today.

We would like to keep open the option of a capital increase for this purpose. We

already received authorization at last years Annual General Meeting to increase the

capital stock by a total of 30 percent.

Under item 6 of todays agenda, the Management Board and Supervisory Board will

therefore propose increasing the capital stock by a further 20 percent or a total of

just under EUR 40 million by July 1, 2014 through the issue of new bearer shares.

The possibility of an equity increase is in no way an indication that the federal andstate guarantees and the KfW loan are inadequate. I am sure shareholders will

agree that they are indeed adequate. Now that we have reorganized our financing

structure, both the banks and the federal and state authorities expect us to improve

our equity capital base.

A possible capital increase can have a stabilizing effect in a crisis such as the

present one.The funds from a possible capital increase could reduce the existing

financial liabilities and thus the high interest payments resulting from the newfinancing structure.This instrument will give Heidelberg the scope for financial

maneuver over the long term and will also enable it to grasp market opportunities

quickly and flexibly, and to cover the associated capital requirements in the short

term. Should you approve this increase, the possible capital expansion would

amount to 50 percent of the capital stock. This is the upper limit allowed by law and

should also be kept as an option in the current situation. You will have seen, Ladies

and Gentlemen, that virtually all companies affected by the crisis are asking their

shareholders to approve this measure. Achieving a good balance between equity


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and outside capital is without question in the interests of both the company and its

shareholders.

Strengthening our equity capital base and obtaining new investors also offers us the

opportunity to increase our share price on a sustainable basis. I am convinced that

an equity increase offers greater potential for boosting the share price in the medium

term than if we were to opt out of such a measure. This applies in particular if the

upturn takes even longer than expected to arrive.

At this point, I would like to say a few words about share buybacks. As you know,

we have implemented two buyback programs over recent years. We have often

been criticized for doing so given that the share price has fallen sharply since then.

However, I still firmly believe that each of the buyback decisions was right at the

time. The buybacks took place during a period when we passed on our net profits to

our shareholders in the form of a dividend. The developments on the financial

markets and in the real economy over the past twelve months could not have been

predicted, even as a worse-case scenario.

Personal perspective

I would now like to say a few personal words about the past twelve months and how

I see things developing.

I have now been working for Heidelberg for 34 years, including my training period

with the company. This is not the first crisis I have experienced here, nor the first in

my role as CEO. It is, however, without doubt one of the worst and probably theworst of all. We have come through previous crisis periods and I firmly believe we

will do so this time, too. As CEO, I see it as my responsibility and my duty towards

our employees, our customers, our suppliers, and you, our shareholders to ensure

this is the case.

The last crisis to hit the company was in 2001/2002 when the Internet bubble burst

and following the attacks of September 11, 2001. This coincided with the previous,

albeit much smaller, economic crisis. As a result, our net profit of EUR 200 million

turned into a net loss of nearly EUR 700 million in the space of just two years


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among other things due to divestments and restructuring costs. Back then we also

did our homework, reviewing our business model and making the company more

streamlined and efficient.

When the economy picked up again, our restructuring was quick to bring positive

results. Within three years, we achieved a net profit 30 percent higher than in the

last year before the crisis.

Package of measures

Ladies and Gentlemen, Heidelberg is currently experiencing a serious crisis just

like many other companies in the print media industry and other sectors. What has

the company done and what measures has the Management Board taken so far in

response to this crisis?

When a worsening of the underlying economic conditions became clearly apparent a

year ago, we took action straight away. Before the last Annual General Meeting in

July 2008, we approved a package of measures to achieve savings totaling EUR100 million by 2011, three-quarters of this within a period of 18 months.

Two months later, in mid-September, the financial crisis took on dramatic

proportions with the collapse of the Lehman Brothers investment bank, thereby

leading to a far worse slump in the real economy. Within a few weeks of this,

Heidelberg announced it was doubling its savings target to EUR 200 million and

accelerating the measures to achieve this. At this point, we also decided to reduce

our global workforce of around 20,000 by 2,500 through socially acceptablemeasures.

When there was a further sharp fall in demand in the press industry in the first three

months of 2009, we once again took immediate action. At the end of March, the

Management Board therefore decided to step up the package of measures

significantly to achieve a further substantial reduction in capacities and structural

costs. The target of the cost-cutting program scheduled to run until 2011 was

doubled again to its current level of EUR 400 million. This makes shedding a further

2,500 jobs unavoidable. We will therefore end the year with 5,000 fewer employees


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than we started it, but such tough measures are necessary to safeguard the

remaining 15,000 jobs.

This process is very painful for Heidelberg and its Management Board. We are

aware of the personal dimension involved in every one of the job losses, but they

are unavoidable in the current climate. No alternative course of action is open to us.

Given that the scale of the job cuts is unprecedented at Heidelberg, it is highly

unlikely that they will be achieved without compulsory redundancies. The

Management Board has therefore been forced to terminate the agreement

safeguarding the companys future with effect from June 30, 2009. This agreement

concluded with employee representatives was most recently extended in October

2007 and was scheduled to run until 2012. The opening clause of the agreement

provides for termination as a last resort to avoid jeopardizing the companys very

existence. We are currently in intensive negotiations with employee representatives

on the exact form the job cuts will take.

Chart: Employees (I)

Heidelberg has definitely never been the kind of company to see its employees only

in terms of costs, Ladies and Gentlemen. In times such as these, however, we need

to look much more closely at running costs than ever before. After material costs,

personnel expenses represent the second largest item in the profit and loss account.

As a result of the slump in business, these expenses have gone from being

equivalent to 32 percent of sales to more than 35 percent in the space of a year. Our

measures aim to cut personnel expenses in line with the drop in business.

Chart: Employees (II)

Since the start of the year, around 2,000 employees including temporary staff

have already left the company. A further 500 job cuts have also been definitively

agreed. These are quite separate from the current negotiations with employee

representatives. 200 employees will leave the company in the course of the current

financial year and another 300 have taken partial retirement and have contracts that


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run until the next financial year. As a result, we have almost completely achieved the

target we set in October.

Package of measures in detail

Chart: Lowering structural costs

The cost-cutting package that will save us EUR 400 million by financial year

2010/2011 essentially consists of six measures.

The most important is reducing structural costs in corporate functions by EUR 105

million. This will be achieved by consolidating functions, optimizing processes, and

making the job cuts referred to.

We will also be amalgamating functions, simplifying processes, and shedding jobs in

our worldwide service and sales units. This will result in savings of EUR 85 million.

Further efficiency increases will cut research and development costs by EUR 70million without this jeopardizing our technology leadership.

As for production, we will be dispensing with some administrative functions at the

various sites, optimizing planning, control, and logistics processes, and reducing the

number of external service providers. The savings achieved here will total EUR 65

million.

We are looking to save EUR 50 million by increasing production and purchasingvolumes outside the euro zone, thereby reducing our overall foreign currency risk.

Last but not least, we also plan to reorganize our Postpress division by combining

functions and relocating some production operations in the packaging section.

Significant progress has already been made with this package of measures. In the

financial year just closed we were able to make savings of EUR 84 million, and by

the end of the current financial year this figure should have increased to between

EUR 350 million and EUR 380 million.


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Ladies and Gentlemen, these measures are already having a positive impact. In

conjunction with the short-time working introduced at the beginning of the year, they

have enabled us to get close to achieving a break-even operating result despite the

extremely weak third and fourth quarters. Around 90 percent of our employees in

Germany are on short-time working, and we have provisionally extended this until

November. On average, they are only working half the normal number of hours each

month. However, we are putting this period of low capacity utilization to constructive

use. We are providing employees who are on short-time working with

comprehensive further training. An average of one in four employees has already

enrolled for a training course. The objective during these times of crisis is to prepare

staff for the challenges ahead.

Strategy

As I am sure shareholders are aware, Germanys mechanical engineering industry

including press manufacturers and thus Heidelberg has been extremely hard hit by

the financial and economic crisis. Despite this, the companys relative strengthremains unchanged. Heidelberg is and will remain one of the leading companies in a

sector that has developed into a high-tech industry over recent years. It is the only

company in this branch that can offer fully integrated solutions from prepress to

postpress and far beyond.

Obviously, the print media industry is in competition with other forms of

communication, in particular the Internet. This has an impact on printshops order

volumes, run lengths, capacity utilization, and results and is a trend that cannot bereversed.

Nevertheless, there is no reason to take an entirely gloomy view of the industrys

future. Ultimately, electronic media can only complement printed media, never

completely replace them. Print products will still be needed in the future for

advertising, for information and communication, and above all for packaging.

Despite the crisis and the growth of online media, the global annual printing volume

of approximately EUR 400 billion is stable and there are even some indications of a


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small amount of growth. Advertising and packaging printing, that is to say our core

target segments, account for two-thirds of this volume.

Ladies and Gentlemen, there is no doubt in my mind that sheetfed offset printing

has a future! Forecasts indicate that printing volumes will be as high after the crisis

as they were before it. As a result, the press market as a whole can also return to its

pre-crisis level in the medium term. There will, however, be shifts in the existing

structures both in regional terms and with regard to the individual segments.

Growth will strengthen on the large emerging markets such as China and India but

weaken in the large industrialized nations. Advertising printing will probably grow

more slowly, whereas packaging printing will continue to grow worldwide

especially in developing countries and on emerging markets.

Chart: Packaging printing

Heidelberg is ideally placed to benefit from all these developments. The market

launch of our very large format presses last year represented a major step towards

strengthening our packaging printing business. The presses, with a sheet width of145 and 162 centimeters, are ideal for printing packaging in long runs. Unlike the

demand in the advertising industry, the demand for packaging for items such as

groceries, pharmaceuticals, and detergents remains comparatively stable, even

during economic downturns. Thanks to our dense sales and service network in the

large developing countries and on the major emerging markets, we are in an

excellent position. Whats more, Heidelberg presses enjoy an excellent reputation

the world over.

Chart: Strategy Reducing dependency on economic cycles

The fact that manufacturers of consumers goods are turning to ever more complex

packaging to make their products stand out is creating additional opportunities for

growth. In addition, the growing problem of brand piracy is boosting the demand for

counterfeit-proof packaging. Packaging printing solutions currently account for

around 15 percent of our total sales. In the medium term, we are looking to increase

this proportion to 25 percent. Advertising printing still the largest segment will


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then account for less than 50 percent. This sector currently still generates around

two-thirds of sales.

In general terms, it is one of our key objectives to stabilize sales by gradually

reducing our dependence on the advertising market, which is tied to economic

cycles. Our consumables business inks and coatings in particular has an

important role to play in this respect. As a full-service provider for the entire value-

added chain in the printing industry, we know exactly which consumables work best

with our equipment. The fact that we have approved the quality of our consumables

gives customers the production and process reliability they need.

Chart: Consumables

The global consumables market is worth around EUR 8 billion, and Heidelberg

currently has a market share of around four percent. In the next five years, we are

looking to double sales in this segment, thereby substantially increasing our share of

the market. Given that sales potential depends to a great extent on product quality

and the number of presses installed, we expect particularly good growthopportunities in this sector.

Chart: Service

We enjoy similarly favorable conditions in the service sector, which we have already

expanded substantially over recent years. No other company in the industry has

such a dense service network stretching across 170 countries worldwide. The target

is for consumables and services to account for around 25 percent of our total salesin future.

We will also be expanding our global consultancy business. Printshops demand for

consultancy services grows particularly fast in times of crisis as they attempt to

optimize business processes and improve management. Our recognized position as

one of the leading companies on the market makes us the partner of choice for

customers in this sector. No other company in the print media industry can offer its

customers such a comprehensive range of solutions from prepress software and

presses in all formats to postpress and printshop consultancy.


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Chart: Production for third parties

Manufacturing will also become more important to us in the years ahead. This is a

sector we will continue to expand, generating additional sales of EUR 100 million

over the next five years by manufacturing complex mechanical components for

companies from all kinds of sectors. As a manufacturer of precision machinery that

makes components with tolerances as low as a few thousandths of a millimeter in

some cases, we have extensive know-how in this field of business and currently

supply more than 70 customers.

Chart: Emerging markets

A very important aspect of our strategy remains the expansion of our business on

large emerging markets that are enjoying strong growth, especially China and India.

Although these countries have not been spared by the global economic crisis, their

large national economies will benefit from above-average growth once the global

economy picks up again. We still see China as a growth market with particularpotential, and we are the only European press and folding machine manufacturer to

have our own plant here. It makes presses and postpress machines that are tailored

precisely to local market needs. Despite the economic downturn in China, the

demand for the machines we manufacture there has remained stable over recent

months.

Ladies and Gentlemen, we will be sticking to the overall strategy I have outlined at

least in the medium term. It would definitely be a mistake to consider, much lessimplement, a complete strategic reorientation during an economic and financial

crisis as serious as the current one. What we need is a calm but very decisive hand.

And thats exactly what we have. We are absolutely determined to continue building

on our definite strengths, including those in areas that are much less susceptible to

economic fluctuations than commercial printing.

Outlook

Chart: Outlook


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So how will things develop in the short term, that is to say in the current financial

year? Regrettably, this question forces me to revert to a more gloomy tone. The

underlying economic conditions will remain difficult in the coming months. Even

though there are signs in some sectors that the low point has been reached or

maybe even passed, the general view is that the economic risks still outweigh the

opportunities. It is much more likely that we will need to wait until 2010 for a

significant turnaround.

Due to the continuing uncertainties, it must be assumed that printshops on key

markets will remain reluctant to invest in the months ahead and that incoming orders

will therefore remain at a low level at Heidelberg. Due to very weak incoming orders

over recent months and the low order backlog, we must reckon on sales for the

current financial year being down on the already very low level of the previous year.

This will once again lead to low profit contributions and impact on the operating

result. The package of measures the company was quick to introduce is, however,

helping.

The rise in financing costs, which also include the costs of the guarantees in

Economic Stimulus Package II, will also weigh on our financial result. Consequently,

we are also expecting a substantial loss for financial year 2009/2010.

Developments in Q1

The cautious outlook for the financial year is borne out by the way it has started.

Incoming orders appear to have stabilized at the low level of the previous twoquarters.

The good news here is that we can see initial signs of a low point having been

reached. As already indicated, however, we will need to wait and see how things

develop. We will be publishing concrete figures for the first quarter of financial year

2009/2010 on August 11 as planned.

Conclusion


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Ladies and Gentlemen, Heidelberg has a very difficult financial year behind it and

the short-term prospects are far from rosy. Nevertheless, I firmly believe that we will

overcome this crisis as we have done others in the past and will regain our former

strength in the medium term. We are currently making huge efforts to get things

moving in the right direction. During the period between 2004 and 2008, we

provided clear proof that we can emerge from serious crisis situations.

Our ongoing package of cost-cutting measures to lower our structural costs

significantly will create the basis to boost our profitability once the economy picks up

again.

We are working hard to reduce the dependency of Heidelberg on economic cycles

by strengthening our packaging printing, consumables, service, consultancy, and job

order production operations.

We are focusing on building our competitive advantages on up-and-coming

emerging markets such as China and India.

Whats more, we are sticking to our strategy of providing complete solutions that

offer printshops substantial production and cost benefits.

We will also continue to maintain our sales companies high level of expertise in

services and consultancy worldwide.

We still play a key role in the development of the press market. Even during the

crisis, we have maintained our market share worldwide.

Overall, Heidelberg is thus ideally placed to once again enjoy profitable growth once

the economy picks up and it will.

We will emerge from this crisis as we have done before and start earning more

money again. We will also see our share price increase and once again be in a

position to pay a dividend, Ladies and Gentlemen.


23/23

I firmly believe that we are on the right track to safeguard the companys long-term

future as a successful company on the press market, and I would ask for your

support to ensure we achieve this. My closing message to shareholders is that

Heidelberg most definitely has a future!

Thank you very much for your time.

Important note:

This Press Information contains statements about future development that are based on assumptions and estimates

by the management of Heidelberger Druckmaschinen Aktiengesellschaft. Even if the management is of the opinion

that these assumptions and estimates are accurate, future actual developments and future actual results may differ

significantly from these assumptions and estimates due to a variety of factors. These factors can include changes to

the overall economic climate, changes to exchange rates and interest rates and changes in the graphic arts

industry. Heidelberger Druckmaschinen Aktiengesellschaft provides no guarantee that future developments and the

results actually achieved in the future will agree with the assumptions and estimates set out in this press release

and assumes no liability for such.

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