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 user 2003-11-28 at 9:40:00 am Views: 111
  • #8016

    Germany’s Heidelberger Druck to Focus on Core Operations
    Thursday November 27, 11:26 am ET

    FRANKFURT — Heidelberger Druckmaschinen AG said late Wednesday that it will take a charge of 400 million euros ($477.6 million) as it sheds up to 1,000 jobs in a wide-ranging restructuring move aimed at improving cash-flow and profitability.

    The world’s largest printing press manufacturer said it will divest activities in research, development and production of web-offset printing presses. The Heidelberg-based company also said it plans to refocus its digital division.

    Heidelberger said it will take the entire charge in the current fiscal year ending March 2004, but noted that it will break-even on an operating level.

    The company didn’t comment on the likely purchasers, but industry sources said Heidelberger Druck has already found a buyer in its U.S. peer Goss International Corp., which specializes in web-fed machines used by the newspaper industry. Heidelberger has confirmed the two are in negotiations over a co-operation.

    Heidelberger’s core sheet-fed business is targeted to the graphic-arts printers, who have much smaller print runs and who depend on corporate marketing budgets for their business.

    The company, which dominates the world market and controls a share twice as big as its nearest competitor MAN AG unit MAN Roland, has been plagued by a severe depression in the global printing machine industry.

    “Overall, the new focus will significantly improve our profitability and cash flow in the short and medium term, and thus enable us to achieve the financial targets we have set for the company”, said Chief Financial Officer Herbert Meyer.

    The revamp will impact net income at German utility RWE AG, which owns 50% of Heidelberger Druck. RWE said in a separate statement that it will carry half the cost on its books for fiscal 2003, though the burden will be offset by several items, including book gains on disposals. RWE said it is sticking to its 2003 earnings forecast.

    The DAX-listed utility company has been trying to divest its majority industrial holdings in Heidelberger Druck and German construction company Hochtief AG. Originally, it said it would complete the sales of these two stakes by the end of 2003, but the economic downturn brought down the share prices of these two highly cyclical companies, forcing RWE to postpone the divestment plans indefinitely.

    “With the third round of restructuring for Heidelberger, RWE’s chances of selling it increase,” said one analyst at a German state-owned bank. RWE can offset the burden of the revamp charges with disposal gains, such as from Consol Energy Inc. (NYSE: CNX News) , and by releasing nuclear energy provisions, he said.

    Richard Schramm, analyst at HSBC Trinkhaus & Burkhardt, said he would rethink his recommendation for Heidelberger stock, likely upgrading it from a current ” reduce” rating. He called the decision a “bold measure” withdrawing from areas previously considered key to the company’s growth strategy.

    “I don’t think it’s only going to be a reduction in capacity. More things are certainly to come,” he said. Mr. Schramm cited Eastman Kodak Co. (NYSE: EK News) , which is in the process of expanding its digital business, as a potential buyer.

    “The two divisions (digital and web systems) are currently making considerable losses, and they’ve never really been able to make money with either of them.”