Printers are switching investment decisions from products which generate high margins to low margin equipment says Heidelberg as it reports a sharp drop in sales in the first quarter of its financial year.
The company has recorded a fall from €541 million to €502 million in the three months from April to the end of June, noting that it had not been possible to match the previous year’s performance in “Germany and parts of Europe”. Even though in China, where participation in the Print China exhibition, has led to significantly higher demand, incoming orders were down to €615 million compared to €665 million.
The first quarter is traditionally the weakest slice of the Heidelberg year, resulting last year in a post tax loss of €15 million. That gap grew to a €31 million deficit this year with free cashflow at €-81 million compared to €-45 million.
The figures serve to highlight the importance of the corporate strategy to move from a company which is dependent on highly cyclical capital equipment sales to the recurring revenue from the subscription model. Demand for contracts has increased and the revenue derived from selling software, service and consumables as part of a subscription contract alongside equipment, has increased 10% to €80 million. “Due to the ramp up, however, it has not yet been possible to compensate for the overall decline in sales,” says the company.
CEO Rainer Hundsdörfer adds: “The increasing share of recurring contract business will have an increasingly stabilising effect on our total sales. We will counter the negative impact on earnings with short term measures and sustainable structural improvements.”
These will include more use of agreements to flex working hours, will delay some investments, and keep a fierce grip on costs. Which is clearly the same course of action that customers are taking. Heidelberg is experiencing “a product mix with lower overall productivity” as customers invest in either digital presses or standard presses rather than the more sophisticated higher price higher performance models.
The transition to the digital Heidelberg will continue as planned. This is about expanding the share of sales due to contract business which will result in higher share of wallet from customers and protect the business against the cyclical dips such as this. In the medium term, the company says, the share of sales from recurring revenues will rise to one-third of total sales.
Heidelberg will not ease back from its transformation into a digital business despite disappointing sales in the first quarter of the financial year. The subscription model is being expanded to include software and services as well as equipment.