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DJ DGAP-Adhoc: Heidelberger Druckmaschinen AG: Heidelberg predicts difficult market conditions and adopts comprehensive package of measures to enhance the cost structure

Heidelberger Druckmaschinen AG / Quarter Results/Restructure of Company 

10.07.2008 

Release of an Ad hoc announcement according to § 15 WpHG, transmitted by DGAP - a company of EquityStory AG.
The issuer is solely responsible for the content of this announcement.
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Heidelberg predicts difficult market conditions and adopts comprehensive
package of measures to enhance the cost structure 

? Heidelberg predicts less favorable economic and structural market
conditions in the medium term
? Successful drupa a key factor in preliminary incoming orders of  EUR 1.1
to 1.15 billion for the first quarter
? Preliminary results (sales, operating result, and free cash flow) for the
first quarter of 2008/2009 significantly down on equivalent figures for the
previous year
? Package of measures put forward to stabilize sales and earnings in the
short and medium term
? Savings amounting to EUR 100 million planned by financial year 2010/2011,
75 percent of these over the next 18 months; special items amounting to EUR
100 million required, thereof up to EUR 70 million in 2008/2009 

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Information and Explaination of the Issuer to this News: 

Heidelberg predicts difficult market conditions and adopts comprehensive
package of measures to enhance the cost structure 

? Heidelberg predicts less favorable economic and structural market
conditions in the medium term
? Successful drupa a key factor in preliminary incoming orders of  EUR 1.1
to 1.15 billion for the first quarter
? Preliminary results (sales, operating result, and free cash flow) for the
first quarter of 2008/2009 significantly down on equivalent figures for the
previous year
? Package of measures put forward to stabilize sales and earnings in the
short and medium term
? Savings amounting to EUR 100 million planned by financial year 2010/2011,
75 percent of these over the next 18 months 

Like most industry experts, Heidelberger Druckmaschinen AG (Heidelberg) has
come away from drupa with the impression that the printing press industry
is facing a prolonged period of sluggishness. Although there are still some
growth segments and dynamic markets - such as packaging printing - it is
negative factors that predominate. Heidelberg does not expect to see any
significant upturn in the industry for the time being. In addition to
difficult cyclical parameters and problematic exchange rate movements, the
current market situation faced by Heidelberg is also being affected by the
rapidly increasing prices of raw materials - in particular steel and energy
- and this is having a sustained negative effect on the economic situation
of all market players in the industry. 

Preliminary results for the first quarter
The difficult underlying conditions have also affected the preliminary
results for the first quarter of the 2008/2009 financial year (April 1 to
June 30). Preliminary sales achieved by Heidelberg in the first quarter
amounted to between EUR 640 million and EUR 660 million (previous year: EUR
742 million). As already announced, the fall-off in sales compared to the
previous year coupled with higher costs will produce a negative quarterly
result for Heidelberg. Based on preliminary calculations, the operating
result will be EUR -35 million to EUR -40 million (previous year: EUR 26
million). Due to the purchase of Hi-Tech Coatings, the cost of drupa and
lower sales, the free cash flow will be clearly below the previous year's
level at EUR -200 million to EUR -220 million (previous year: EUR -81
million). 

Incoming orders received at drupa exceed expectations
The news on preliminary incoming orders for the first quarter is more
positive. Heidelberg received orders amounting to between EUR 1.1 billion
and EUR 1.15 billion (previous year: EUR 934 million). This is satisfactory
in the context of the leading industry trade show drupa, which made a major
contribution to this good  order intake. Heidelberg successfully
established itself on the packaging printing market and as a full-service
provider, including consumables, at drupa. There was also a huge amount of
interest in the launch of the new very large format. Most of the contracts
concluded at the trade show will be reflected in the sales figures for the
second and third quarters. 

Based on the orders placed at drupa, Heidelberg predicts that sales and the
results for the second and third quarters of 2008/2009 will be up on the
first quarter. 

For the 2008/2009 financial year as a whole the company does not expect to
match the previous year's sales and operating result. Due to the uncertain
economic situation worldwide and the volatile market environment, it will
not be possible to provide a reliable forecast of the key figures for the
2008/2009 financial year as a whole until later in the year. This outlook
will be published no later than with the half-yearly results at the
beginning of November. 

Comprehensive package of measures with four key components
The Management Board confirms the growth strategy that has been embarked
upon, which focuses on packaging printing and services for the print media
industry. Any reduction in manufacturing capacity over the coming months
will not extend beyond the flexibility agreements entered into. 

In order to counter rising costs, the Heidelberg Management Board has
prepared a comprehensive package of cost-cutting measures to be implemented
with immediate effect. The package's four main focal points are reducing
R&D expenditures, restructuring postpress packaging activities,
significantly increasing the proportion of purchases made outside the euro
zone, strengthening international production sites, and achieving a
substantial reduction in structural costs. 

Overall, these measures are intended to result in savings of around EUR 100
million by financial year 2010/2011. The aim is to achieve a large
proportion of this - EUR 75 million - within the next 18 months. This
package of measures will initially increase costs to the tune of a further
about EUR 70 million in the current financial year 2008/2009 and another
EUR 30 million until financial year 2010/2011. 

'In addition to the drupa trade show, which can be deemed satisfactory
overall, we have also been putting a great deal of work into our medium- to
long-term strategy. This has made it clear that the all in all increasing
costs call for a further significant adjustment to our cost structures. The
package of measures adopted takes into account all key areas,' says
Heidelberg CEO Bernhard Schreier, stressing the urgency of the measures. 

Reducing R&D expenditure
Heidelberg will be making immediate changes to its R&D strategy. Improving
efficiency and pooling development activities should result in savings of
at least EUR 25 million. This will lower R&D expenditures from their
current level by a good 10 percent. Consolidating R&D locations will also
help cut costs. In the medium term, R&D expenditures are to be cut to less
than 5 percent of total sales. 

Restructuring postpress packaging activities
Over the next three years, Heidelberg will be restructuring its postpress
packaging business. In the entire Postpress sector the operating result is
to be increased by EUR 20 millions until 2010/2011. This is to be achieved
by consolidating production capacities, transferring certain operations to
Slovakia, and restructuring R&D activities within this product area. The
packaging market segment - and expanding services and consumables
activities - still represents a growth driver on a struggling market.
Unlocking this potential should further reduce the cyclicity of the
Heidelberg business model while also boosting sales and results. 

Increasing purchasing and production outside the euro zone
Intensifying purchasing activities outside the euro zone and expanding
production in other countries will have positive effects. Overall, the
purchasing volume outside the euro area is to be increased from the current
level of around EUR 40 million to almost EUR 200 million in financial year
2010/2011. We will also continue to push ahead with production in other
countries. The plants in China and Slovakia are to be expanded, and it is
also intended to transfer production of a small-format press to the site in
the U.S., which has the largest sales market for this product. Overall,
these measures will result in cost savings of around EUR 15 million. 

Lowering structural costs
In addition, Heidelberg is planning to cut structural costs. Over the next
24 months, the company intends to save indirect costs of EUR 40 million,
around EUR 10 million of this in the current financial year.
The entire package of cost-cutting measures will also impact on the
Heidelberg Group's workforce. Honoring the agreement on safeguarding the
future, which runs until 2012, and subject to meetings with employee
representatives, around 500 jobs are to be shed worldwide by the end of
financial year 2010/2011. As of March 31, 2008, the Heidelberg Group
employed 19,596 staff worldwide. 

Additional details on the company can be found at www.heidelberg.com. 

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

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