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Tomorrow morning (June 9th 2020) the shareholders of Heidelberg again will have to listen to devastating news from Heidelberg's management. I believe these people are the ones in our industry with the thickest skin, and I feel sorry for the shareholders and the owners of Heidelberg printing equipment!

The printing companies, of course, still get great equipment, but to trust the future of Heidelberg must be more than difficult. With a loss of 343 million euros, the company doesn't have much money to hold against future losses - and future losses are what to expect. The operating loss of Heidelberg was in 2019 nothing less than 68 million euros, and though Heidelberg claims part of this to be because of the COVID-19 - not that many weeks were really affected. In the coming quarters, we will see the full effect of the COVID-19, and it's almost impossible not to imagine an even worse effect (most likely all vendors). The cost of the restructuring is now "covered," and the company should be in better shape for the future - but are they?

When looking at all of the major offset press manufacturers (Heidelberg, Koenig & Bauer, Komori, etc.), the losses are for the most of them pinned at the market. None of the vendors are apparently asking whether their products are not good enough, aligned with the market demands, or challenged by the digital vendors, who often have a completely other mindset.

The termination of the VLF and Primefire is one thing. Subscriptions another, but is Heidelberg fit for the future? The ever-recurring question is where the company will head. In 2018 the revenue was 2,49 billion euros and an EBITDA of 180 million euros vs. 2019, where the expected revenue is 2,35 billion euros and an EBITDA of 102 million euros. The net result, was in 2018 21 million euros vs. 2019, with an expected loss of 343 million euros. The 343 million euro loss also covers restructuring costs - but the operational loss was still 68 million euros. (Check here.)

Heidelberg is a volume business. With a break-even, around 1.3 billion euros (our estimate), and a profit of about 45-48%, their 2.35 billion euros turnover shouldn't be lowered much before the shit hits the fan!

One of the interesting things to watch out for in future announcements from Heidelberg is how the own-financed subscription machines are influencing the balance sheet. We know that Heidelberg finances some of the subscription-machines themselves. That both influence the balance sheet, but even worse also the cash-flow. Will these machines be accounted for at list prices - which is good for revenue? Or accounted for at cost - which will look less bad on the balance sheet? Have they been able to find financing partners for future subscriptions?

Heidelberg is undoubtedly in trouble, and the biggest issue is that there are no quick-fixes. Heidelberg, of course, needs to work to be profitable. The dramatic changes in the market, not only because of the COVID-19 but also the expected recession, require a major focus on profitability. But from where? The layoff of 2.000 employees will benefit the operation with around 160 million euros (our estimate), so we should be able to see a positive result already from 2020 in the range of 60-80 million euros? However, the COVID-19 will most likely decrease demand considerably - and with only a 6% decrease in revenue, the loss increased with 40% according to Printweek in the 2019 result.

In the Investor Relations press-conference from last year, Heidelberg promised a result on level with 2018. That didn't happen. The situation is, by all means, different from last year. The executive board is reduced to only Rainer Hundsdörfer and Marcus Wassenberg - and Wassenberg has only worked with Heidelberg for less than one year. The elimination of VLF and Primefire is two major changes that hopefully, in the short-term, will minimize cost, but will it also on long-term be the strategic decision that leads Heidelberg into the future?

When Heidelberg's Anthony Thirlby and David Schmedding as front-runners, talk about subscriptions (and loads of funny abbreviations), the big question is whether subscriptions can save Heidelberg? The short answer is, of course, 'no.'

If subscriptions are THAT more profitable than selling machines, the customers are the ones paying the "over price," so of course not. Printing companies are also under pressure and will, even more, postpone investments - and subscription or not - there is a bill to pay. The upside for Heidelberg is the consumables. Consumables have a variable cost since Heidelberg don't produce these themselves. With the subscription model, consumables are an almost fixed income, so eventually, they could have a golden opportunity to generate cash - but from a shareholder perspective, it IS also a dark horse. With a higher revenue generated from the consumables and Prinect, Heidelberg will have increased revenue and a higher profit. But enough?

For every subscription customer, Heidelberg convinces, there is a liability. The financing of the machine. In a recent interview I did with Hundsdörfer, he said that Heidelberg would announce a financing partner before drupa. Now is drupa time, ladies and gentlemen - so maybe this is the MAJOR announce of tomorrow?

For weeks, we have tried to figure out what Heidelberg can do, and the only solution we can see on a short-term basis is to down-size Heidelberg even more. In the long-term, they have to produce products in demand. Maybe they should invent a digital inkjet-based printer, or what about formats larger than B1?