EXECUTIVE Q&A

RAINER HUNDSDÖRFER, CEO HEIDELBERGER DRUCKMASCHINEN AG, AND CEDRIC MUENZING, HEAD OF SERVICE HEIDELBERG NORTH AMERICA

By Ralf Schlözer

Printing News: Let’s start with the probably most frequently asked question nowadays: How did the COVID-19 pandemic impact Heidelberg in 2020, and how has the road to recovery been so far? Rainer Hundsdörfer: Naturally, the pandemic hit us severely. Last year at about this time we noticed almost a state of shock in the industry. This eased during summer and continued to improve. From July orders increased, and in December we saw the high point of the year, with worldwide orders surpassing 2019 levels. The are some differences among customers, however. We need to distinguish between packaging and commercial printers. If there are no events, less advertising, there is Rainer Hundsdörfer, CEO of Heidelberger Druckmaschinen AG less to print. The online activities, however, are not only driving demand for packaging printers, but also for commercial print markets. We have seen a huge increase in inserts for parcels. Each parcel now includes catalogues, vouchers and flyers. The parcel has become a new channel for advertising, not only for the goods included. It is taking advantage of the unpackaging experience. In addition, the consumer does not need to start his PC to view marketing materials. It creates a new significance for print, where print is faster and easier to use.

PN: Probably the new direct mail?

RH: Exactly. Even more targeted than classic direct mail. This helped some of our customers to regain some volume. There are geographic differences as well. China is back to normal since July and since fall we do have one record month after the other. February was much better than last year for example.

For the first quarter this year we do not see a decline despite all the renewed lockdowns around the world. It is not the recovery we hoped for. However, once large parts of the population have been vaccinated by the middle of this year and life is resuming, the economic experts predict a post-Corona boom. This will be an uplift for our customers as well, and some of our customers are already investing for that. Still regional differences apply. But I am very optimistic for growth this year.

Nevertheless, the decline has been harsh, and in our current financial year ending in March, we lost about €400 to €500 million in revenue. We plan to make up most of it in the following financial year. What helped us a lot is the global reach of Heidelberg. It enabled us to support our customers worldwide. We were able to install all presses ordered, in many cases without sending specialists from Germany due to travel restrictions. We have 2,500 qualified service technicians all around the world. This is pretty unique for

any machine-building company even outside press manufacturing. Additionally, I believe our high degree of digital competency and networking helped a lot. It even increased the willingness of our customers to adopt digital services from us. We will build on that to help our customers in making their business more stable, productive and profitable.

PN: Is the digital connectivity already a feature adopted by all press buyers?

RH: The vast majority does. There are remote regions where it becomes more difficult. China has been a bit reluctant at first, despite the high rate of digital penetration. This changed a lot, partially driven by the pandemic, where the benefits became clear.

We did not only help our Heidelberg customers, we even supported other engineering companies to install their machines. For example, we support Masterwork in countries outside of China for all their products even outside print finishing.

Service is a major asset of Heidelberg. We have the personnel and the digital connectivity, which is the best of both worlds. Our customers have been happy about the support and feel reassured. We don’t intend to reduce our service offering in the future, rather we plan to expand and look for additional business opportunities.

Cedric Muenzing: The situation Mr. Hundsdörfer described applies to North America as well. Our service did not slow down, rather the intensity of the support increased. There was a brief stoppage at the start of the pandemic with customers being reluctant to let outside personnel on site, but this normalized very quickly.

Travel restrictions made some activities more complicated, although our local organization helped a lot. We have a sophisticated supply chain for parts as well. We were able to install all machines ordered, supply training and ongoing maintenance. We even moved some presses within and outside North America.

We even ramped our trainee program, after realizing that some of our experienced technicians will retire in the next few years. This ensures there is sufficient time for knowledge transfer.

PN: There were no restrictions in installations and training for the more complex presses?

CM: We are closely connected to our headquarters. There was some extra effort required and it was not easy, but we managed to have all installed and operators trained.

RH: We learned a lot in digital communication, especially in service. Many of the classic training programs were moved to online courses early on. There were plans for this before, so we had to speed up the programs.

We have a strong combination of technicians on site and experts based in Germany. They can retrieve data from the press and sometimes know more than the person on site. Together, with the possibilities of digital communication, we could solve demanding tasks. For example, in Japan we were not able to send somebody at all for a complex press, so we had to coach local service engineers from remote. The installation was completed in time.

These are inspiring thoughts for the future. To have that team approach from local and remote is faster than sending somebody from the factory and more cost efficient. The pandemic was a catalyst for developments that were shaping up already.

Take trade fairs for example: they will change fundamentally. That change was not caused but accelerated by the pandemic. Many large b2b fairs were ripe for change anyhow, but nobody dared to skip them. Communication is changing as well. Online has a bigger presence while print is adapting and moving into new channels.

PN: That means you have doubts for drupa 2024?

RH: I do not believe it will come back

in its historic format. The four-year cycle for innovations is not up-to-date anymore. Innovation is continuous. For example, our software moved to the cloud and we will not even publish releases anymore. Instead, we’ll send updates directly to the users. We will be investing in new, virtual trade fair concepts to ensure closer and more individual customer communications as well as in select regional events in our growth markets. Heidelberg will take part at China Print in June -the biggest trade show event of our industry in 2021.

PN: I still did appreciate seeing the new presses live at the Heidelberg Innovation Week. This means there will be other events?

RH: This is going to happen again, but on a more continuous basis. Big players like Heidelberg have the opportunity to make these combined live and online events. Hit hard will be the smaller players. They benefited the most from trade fairs. But for Heidelberg: Why not make in-house events in our big show rooms? There is no competition and all event marketing benefits us. This is especially true for Heidelberg. We can show a lot more at our Wiesloch factory site, or at our site in China. We can do similar things, at a somewhat smaller scale, in our demo centers around the world.

We do understand that customers for large goods still want to touch and feel the devices, but we do that locally, supported by online activities.

PN: A major line of business for Heidelberg is the subscription business. Did the pandemic affect, maybe accelerate, the uptake?

RH: The subscription business keeps growing. We have one major impediment at Heidelberg which limits us pushing the business as we would like, and this is of financial nature. Presses within Subscription Plus contracts remain on our balance sheet. We are optimistic to have solved the problem in the near future by securing sufficient funding. Then we will accelerate the growth.

But we turned the restriction into an advantage and are offering lifecycle contracts besides the Subscription Plus model. These are for customers wanting to buy the press or customers with existing presses. We have about 500 lifecycle contracts and about 80 subscription contracts. The contract business in total contributes 8% to our revenue in the FY 2020 and is expected to grow to 11% in FY 2021.

Most interesting for us are customers that have a growing business model which can make good use of an increased productivity. This could be commercial printers aiming at consolidating the market, and those show big interest. I believe in a few years this will be the dominant form of transaction. We continue to offer straight purchases and all kinds of contracts, and we got a lot more flexible here. All contracts are tailored to the customer. Our vision is being the leading end-to-end supplier, from prepress to delivery.

PN: Would that include operating the press as well?

RH: Likely not. Managing personnel is still better done locally.

CM: We do have a relatively high share of lifecycle contracts in our North American business. We do not want to leave our customers with a press, we want to accompany our customers. That is why we tailor our contracts and lifecycle products to each customer. The dynamics will increase with more services offered around the press.

PN: How is the strategy with Gallus? Are you looking for a new buyer, or do you plan to integrate Gallus back into the core business?

RH: Gallus stays with our core business. Initially we didn’t plan to sell Gallus as not fitting to our core business. Instead there was much insecurity in the market last year due to the pandemic and we wanted to bolster our cash reserves – a sort of life insurance for us when we took up that opportunity. The deal fell through, which is

not uncommon in M&A. We already developed a strategy before the sale, which we are resuming now, by giving Gallus more independency again. The customers are different, the business is small, dynamic and agile. There is still cooperation in R&D. Sales and service is done by the national organizations, but with dedicated staff. Gallus can benefit from the infrastructure and logistics we are building.

We are still deciding what to centralize or keep separate and made a development roadmap. We are closing down most of the manufacturing in St. Gallen (Switzerland) and shift it to their Langgöns factory in Germany for cost efficiency. We might look for a lower labor cost site as well for entry level products. We give Gallus all the freedom and flexibility to move quickly and benefit from the growing market demand.

In addition, Heidelberg has a vital interest in Gallus, which is digital print. We stopped the Primefire but did not stop looking at inkjet. We believe at some point the technology is ready.

PN: At the Innovation Week last year you showed an automated press line with fully automated plate feeding to the print unit. Is this already available?

RH: We are about to start field testing and machines are being installed now. At the end of the year the line should be fully available. This is a highly productive solution for 24/7 operation; therefore, we need a thoroughly tested solution. Despite the complexity of the press, we will be able to offer a true operator-less production.

PN: Can you give us an update on Zaikio as well?

RH: I am excited about Zaikio. We deliberately decided to make this an all-encompassing platform for the industry.

We are within the envisioned time frame. We just successfully concluded testing and are going live now. We are offering all print shops free access to the Zaikio Procurement industry platform with immediate effect. Users can already place orders from their MIS via the platform at suppliers that signed up. We have a good number of MIS vendors and several paper mills already signed up.

There is a high interest in having a common interface for all software and solutions. I am very confident that within one or one-and-a-half years we have established Zaikio well enough to call it a success.

We separated Zaikio from Heidelberg to give competitors an opportunity to take part, and we are in talks with some. The platform makes the most sense for a customer if all suppliers and stakeholders can be integrated. Initially we looked at having a sort of Heidelberg OS. Looking at our customers we felt that this would not be enough. As a technology leader we felt we had to provide more. I believe who dares reaps the biggest benefits. Our competitors will benefit as well, but our customers will benefit the most.

PN: Finally, where would you see Heidelberger in two years’ time?

RH: We will strengthen our core business, especially in respect to providing endto-end solutions. We will also focus on workflow and software. Here we will move to subscription models as well, and customers will only pay for what they use. Likewise, we can update solutions around the clock.

There are two additional activities we will put into separate units to let them grow and unfold: eMobility and functional print. We provide wallboxes for eMobility and are already one of the market leaders in Germany. This business is expected to grow from €15 million last year to €30 million this year. This rapid growth requires an independent organization, which we will provide during our next financial year.

Most importantly we will remain a trusted partner for customers in print and packaging. ● Read More…

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