HDD Heidelberger Druckmaschinen AG

Like most industry experts, Heidelberger Druckmaschinen AG (Heidelberg) (FWB: HDD) 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 assumes no liability for such.