09 June 2019 Business

Heidelberg sticks to digital path despite bumps in the road

There is no alternative to pursuing a digital transformation of how Heidelberg operates says its CEO as he prepares for the next phase which will become increasingly visible over the next year and faces economic uncertainty across the world.

Subscriptions and contract revenue will account for 10% of Heidelberg's sales within the medium term, covering both service and consumables and press sales, according to CEO Rainer Hundsdörfer. The new business models will account for a sales volume of at least €250 million in the medium to long term, the company says in its 2019 annual report.

This is part of the strategy for turning a sell and fix model for selling presses and then looking after them into one based on annuity revenues and on shared rewards from growth achieved. The early success of the subscription offers a pointer to the potential of this approach. By the close of the financial year, Heidelberg had signed up “approximately 30” customers on five year deals that are worth €1 million a year.

It aims to sign more than three times this number in the current financial year. And the subscription model is being expanded to software and applications, typified by its acquisition of Crispy Mountain, developer of the Keyline MIS which is already a cloud based application with a per month revenue stream.

The approach becomes a foundation stone for the HeiOS approach to creating a complete environment for all printers to find all manner of software and applications where provided by independent developers or by Heidelberg. Whether Heidelberg’s Saphira brand consumables or those from alternative suppliers. Hundsdörfer wants this to become the Amazon of print: everything a printer needs will be available via the platform.

The Prinect production management tools will be available on a per use basis and the Heidelberg Assistant is already being used by 1,000 customers to monitor the status of their production and any job. Printers will be able to select the packaging or mix of contract and purchase that best suits their needs.

Before then Heidelberg needs to continue the transformation he was brought in to implement. There are obstacles to prevent the smooth execution of the plans: slowing economies and uncertainties caused by Brexit and deeper trade wars.

Heidelberg needs to evolve because its market is changing. Demand in developed economies has plateaued, with any growth coming from the developing countries; digital printing is becoming more viable in all areas and structural change is emphasising absolute efficiency, typified by the web to print printers. In 2018 the sector was estimated to be worth $23.8 billion globally with growth of 5.1% CAGR over the next five years.

For Heidelberg the uncertainties mean that the business is forecasting a standstill in revenues and profits for this year. It achieved revenue of €2.49 billion in 2018/19. Sales in post press equipment will grow at a slower rate than if its purchase of MBO had been passed. Economic slowdown will hit sales of consumables.

Printers are cautious about investment, leading to longer buying cycles “making companies more reluctant to invest in new technologies, the ramp up in the area of digital printing can be expected to be more conservative than originally planned”, Rainer Hundsdörfer says in the company’s annual report.

The company is therefore predicting a result of the year to March 2020 that is in line with the result in the last financial year. But this is only reinforcing the importance of the digital strategy.

“There is no alternative to the ‘Heidelberg goes digital!’ strategy. We will continue to see the fruits of our strategic activities. Unfortunately, current economic developments are dampening our growth dynamic, even though the market potential for digitisation in the printing industry and for digital packaging printing remains high,” says Rainer Hundsdörfer.

By Gareth Ward

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