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Edited Transcript of HDD.DE earnings conference call or presentation 6-Jun-19 12:00pm GMT

Q4 2019 Heidelberger Druckmaschinen AG Earnings Call

Frankfurt Jun 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Heidelberger Druckmaschinen AG earnings conference call or presentation Thursday, June 6, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dirk Kaliebe

Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment

* Rainer Hundsdörfer

Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer

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Conference Call Participants

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* Aliaksandr Halitsa

Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst

* Gordon Schönell

Bankhaus Lampe KG, Research Division - Analyst

* Malte Christoph Schulz

Commerzbank AG, Research Division - Industrials Analyst

* Markus Schmitt

ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst

* Richard Schramm

HSBC, Research Division - Analyst

* Stefan Augustin

Pareto Securities, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Heidelberger Druckmaschinen AG conference call for the publication of the results financial year 2018-2019. Today's conference is being recorded.

At this time, I would like to turn the conference over to Rainer Hundsdörfer, CEO. Please go ahead, sir.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [2]

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Ladies and gentlemen, I'd like to welcome you to Heidelberger Druckmaschinen AG Analyst and Investors' Conference today here in Frankfurt. We are glad that you're here. Thank you for your interest in Heidelberg.

We will start with the financial figures and the outlook and -- because Dirk Kaliebe's -- this is his last conference for Heidelberg. So today, he can go first. I will then give you an update on the strategy and the conclusions out of this.

So with that, I hand over to Dirk Kaliebe, our CFO.

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [3]

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Yes. Many thanks, Rainer. It's, as mentioned, my last balance sheet press conference. I've had a couple of them but not for communication outside, but I would love to say many things to all of your support in the last couple of years. We have faced a lot of challenges and I hope that you see the situation right now, at least from the financial perspective, a little bit more stable than it has been a couple of years backwards. I just recall 2006, 2007 where we, my private definition, haven't had any chance, and we decided to use this plan, which we haven't had, worked on successfully with all of the team efforts. Afterwards, after having received the state guarantee, we have had one chance with the big capital increase. Also, this was being implemented successfully not only from the team but also within the capital markets. Also, many thanks for this one.

Afterwards, we have always evaluated options, what we can execute. And so it was up to us to decide which options to choose. We took one option to step into digital business. I don't think that this was the wrong step. On the financing side, we have had several options. And then if I talk last time today about the financial framework, my personal judgment would be looks quite stable. Net debt is in an okay position, but obviously, you always have challenges in front of you. And we believe that we have done the right things for the strategy going forward. But it will also be hard work to implement that one, and I wish my team the best for that one.

I personally will take a longer -- or a very long sabbatical while I have now worked for more than 30 years or about 30 years. There's a certain point of time when you realize that you haven't had 2 or 3 weeks holiday in a row, then you ask yourself if this is the right decision moving forward. Now different, and I wish the new team afterwards all the best. Not to say good-bye today, while still until the end of September, I'm in the position, and my CEO asked me to go through some tasks, and there are challenges in front of us, what I will try to finalize until the end of September. Hopefully, a little bit earlier, and if it takes longer, then it takes longer.

Just a private statement. Therefore, many thanks for all of your support. Hope that we managed the critical things and the majority okay. Sorry for the failures which we made, but not making any failures that is often not possible.

Coming to the financial year. As you are financial experts and we have published the figures already, we can just say we haven't made any changes in between, between the preliminary figures and these which I present here today. We managed to be somewhere in the slight growth, not the one which we expected, but at least it was growth, from EUR 2.4 billion to close to EUR 2.5 billion.

And if I'm going to the bottom line, we said we're going to improve net profitability from EUR 14 million. We managed to come out at EUR 21 million. Obviously, we would love to have a higher one, but it's the fourth year in a row that we are positive after taxes.

If I'm jumping over to EBITDA, we said at the beginning of the year we are targeting 7% to 7.5%. We have been trading 7%, 7.1%, the consensus or somewhere there. We managed to came in, in this level. So in this regard, it was okay.

EBIT, the adjusted depreciation in between, nothing as a surprise. Restructuring result, we said we're going to invest into the change in our population going forward, and this is what we are doing. Older staff have took on an early retirement program, a pure investment into our workforce where we can take people out here. We can put new young people in there. We can change from one to the other department. We see this as an investment from our side. So this is coming in as we have planned it. Financial results somehow in line, we have done half of the redemption of what we initially thought. Net result before taxes, somewhere in line. Net result after taxes, okay.

The point of the free cash flow, I will comment on, saying we have done this on purpose. We have invested in projects. But I would love to show you where we have invested. Hence, our own internal target with leverage linked to our business model with the higher transactional business. We said, we claimed that we're targeting for below 2x net debt/EBITDA excluding pensions. This is what we have achieved. If we are moving forward and changing more to a subscription model or contract business, then obviously one could say you can also increase this leverage. But up to now, we always said this is the right leverage target for the management team. And we have achieved this once again. Therefore, we see this as a somehow stable indication for the business model going forward.

If I take the overall environment, since 4 years, we are bringing in like numbers, positive net result after taxes despite the fact that the GDP growth has decreased from 3% down to a forecast of 2%.

If you see our spread in regional order intake, and that's somehow comparable also with our sales, obviously, this is around EUR 2.6 billion, 40% in EMEA. The challenge is known. It was formerly in Eastern Europe here. Now it's coming to the Brexit and the savability of the European Union. Asia Pacific, we have had a very good order intake and a very good sentiment in PRINT in China, despite the discussions between -- tariff discussions between U.S. and China. North America has also stabilized at a good level. South America, good momentum. So from the regions, there are the challenges around, but we would have to say that this is a well-balanced portfolio on a worldwide basis. As long as there is not a global recession, we always say that we wouldn't be affected. We would have to see how it's developing going forward. But we see the uncertainties around the clouds, which are coming. Therefore, our outlook is a little bit more conservative than previously said.

What do we have by segment? As you know, Heidelberg Digital Technology is carrying the main part of the equipment business. Then we have the Lifecycle Solution business, which is close to EUR 950 million, EUR 1.5 billion is the equipment part. Profitability, it's different here on the one hand side. Equipment is now with EUR 50 million EBITDA. You have to keep in mind that the investments for the future to ramp up on the business R&D is now reported in here. And I'd just say, going back 10 years, we know that we have started this same separation of the business, this minus EUR 150 million. So it was a long way. We are not satisfied with the result. If we would jump forward 2, 3, 4 years and would then see that the investments, which we are now doing, would bring the benefits as the business model is being implemented and is up and running, then the picture hopefully will look different on that part.

The second part here, Heidelberg Lifecycle Solutions is coming in with an EBITDA of 12.8%, close on the same level of the previous year. With the equipment business, we are creating the installed base for doing aftersales and all these activities afterwards. And how we would love to make use of the installed base will be part of the presentation from my CEO.

Later on, strategic-wise, we are, on the one hand, proud that if you go back, we always ask ourselves how stable the sheet-fed offset after the drop in 2006, '07 of 50%. And we can now state, in 2, 3 years, we are somehow stable with the overall sheet-fed offset equipment. We do believe that we have a very good portfolio in there. If you recall, the XL technology, which is running autonomously, which was presented at drupa, we wouldn't say that this is all technology. It is as modern as the new digital technology is.

Here, we have a slight indication for Heidelberg Financial Services. I would just like to say, the last 10 years, we managed to grow at around and to hand over up to EUR 10 billion of financing volume from customer to the capital markets. We have brought down the capital bounded for Heidelberg meticulously, and we are still here on the breakeven level. The intention is to support our customers by doing the right consultancy over to the capital markets. And we have recently signed with one of our financing partners a framework agreement specifically also for subscription business. So as what we have promised, it's now being fulfilled. If we have the right contracts in the right countries, we are also able to outsource the machine part out of the subscription business. And in this regard, we have a USP from our perspective here, that we have a very experienced organization, which is feeding this financing of equipment and which will need precision to help Heidelberg by growing this part going forward. The figures in itself which we make EUR 1 million or EUR 2 million profit, this is not a major driving part. It's really to support sales and service organization and supporting the customer to get access to capital endowment.

If I look onto the balance sheet, we do have EUR 2.3 billion total sum of the balance sheet. We are making up to EUR 2.5 billion of top line in the P&L, so the efficiency from this respect, from this part is, from me, still gained. If you then exclude from cash and cash on -- equivalent, cash on hand that's EUR 200 million, we know that normally, the operational cash must be around EUR 18 million. You'll see that there's a liquidity buffer, which we take for certain maturities on the one hand side, on the financial framework or for investments going forward on the other hand side.

Net working capital, I will comment on separately. Fixed assets, you see that we have brought them down from about EUR 1 billion, EUR 1.2 billion, EUR 1.3 billion couple of years backwards. Now it's slightly increasing while we have done the one or the other investment in the buildings, I will come to. And we report here some of the subscription contracts, but in the end, still efficient.

What we have on the provision side, the pension provision, the interest rate for German interest costs have come down. We have now reported 2.0%, previously at about 2.4%. 1% -- or 0.1% is the decrease or an increase in provision by around EUR 25 million to EUR 28 million, so 4% due to reduction in equity, the other way around of EUR 100 million. This high volatility, which we do have still included, was indication that we said as we are running the business right now, we're still targeting a normal equity quarter of 25%. Here, we are now at 17%, but the volatility is still in there. Important for us is that we have changed the pension schemes 2013, '14, that we just have in the majority interest plus the normal service costs included. So we have now the business risk for the business as a whole.

Net working capital, I will come to. Before going there, I would just like to say, deferred tax assets, we still have about EUR 1 billion tax losses carryforwards. We still have not capitalized any deferred taxes on that one, while we say we would do this -- as we are progressing in higher profits, then we will make use of the tax losses carryforwards. But we don't want to build up here high assets on the one hand side and then using it over time. It's a more conservative approach.

The rest will be commented on here. If I would now look here on the last 5 years, this is running year and the last 4 years. Sorry that the numbers are not there. If you would go back 10 years, you would have seen that we were starting at about EUR 1 billion. We have drawn down capital bounded now percentage-wise in a range between 25% to 30% as we have a very deep value chain where we have -- can feel that -- where we are producing the framework. And then, once we have assembled the machines are making the installation up to -- down to Australia, the value chain we do have, therefore, higher percentage of net working capital that's coming together with our business. But we have constantly brought this level of capital bounded down.

We believe that if we are going forward and if we are changing the business model to when there are managed inventories to subscription models, we have also a positive effect on net working capital. And the ones which we have -- where we have seen the increases in this year are coming from the point that we have prepared the machines for the digital ramp-up and if the volume is not as high as what you have expected, then you have a certain pressure on net working capital. So this one was something in here where EUR 30 million to EUR 40 million are linked to the ramp-up of the digital business, which is bringing the percentage of net working capital a little bit higher.

The other thing, in cash flow, we will have to say that the operational cash flow was in the same level as in the previous year. And net working capital, out of the EUR 60 million, I would have said EUR 35 million to EUR 40 million was to ramp-up of digital business.

Then, what we have said, we have also invested in the last 2 years on a higher level for digital project, ramp-up of new business models and the new Innovation Center. What do I mean with new Innovation Center? I will come back to the chart later on. Having the tight concept where we said we're going to move with the headquarter, first step; second step also with our new center, Innovation Center, to Wiesloch. We have relocated over these 3 to 4 years 2,000 people from core Heidelberg over to Wiesloch. We are now making use of the same infrastructure. We have now between 5,000, 5,500 people in Wiesloch. And the cost savings on a permanent basis is around EUR 10 million, while we do not have 2x A, B, C, D, E and so on. In addition, we can make use of optimization of processes. If R&D, service, product management, assembly is now closely working together, there are efficiency gains, which you can feel that we are moving into the center. And this is not being measured in the EUR 10 million. We hope that this will also influence the efficiency, the internal processes, in addition.

What was the second thing, what we have had, digital project was where the machines ramp up a few business models, where our -- this year, our subscription models where we took on purpose capital bounded on board and the new Innovation Center have been the investments, while we have been here at EUR 120 million. If we recall, this one, in normal years, we have been around EUR 80 million. So there was a certain investment. If I take all the elements in here, that comes to the free cash flow of EUR 93 million minus.

In addition, we also closed an old issue in the U.S. If you recall that we have had formerly the digital business in Rochester. Out of the disposal from our building owned by Kodak, we have been in an obligation for the building, and we were able to finally close this obligation by the end of March. So there was an outflow on a cash flow basis, which we have reported as contingent liabilities in the past, but this one is being closed. And also here is a portion of about, let me say, EUR 15 million included, which is a one-off, which obviously will not recur in the next year.

So what is the message? We know that we should be free cash flow positive in general, but we also know that we are investing in the direction A, B, C, D. And this negative element in here was somehow planned, while R&D center was planned, new business models were planned, ramp-up of digital project was planned a little bit different, and then on top of this, just closed our -- or our finalization of Rochester. What the other ones, where I could also make a chart, but this [regard] would look much better.

Going forward. Sorry, next page is operational excellence. The part of the EUR 10 million cost savings coming here from the Innovation Center besides all the positive elements. And I would like also like to mention that we have also sold the R&D building that when we have sold it, we have repurchased some parking lots that we can make much better use of the PMA, which will be the same things of digital future of Heidelberg. And we are trying to connect also the PMA together with the new working places in Wiesloch where we have built our own Heidelberg Digital Unit. We decided to locate this digital unit in Wiesloch and not in Berlin as many others are doing it. And as we are then closely connected here with the PMA, we believe that we can make use of better working spaces for this new environment, this new culture issue also for the rest of Heidelberg. And we call it here new workplaces, not New York but new workplaces, and hope that this will bring more momentum into the rest of Wiesloch-Walldorf.

Coming to more or less my last points. I always claimed that financing should be done on a stable basis, and we have said that financing should be built on 3 pillars. One is capital market instruments. The other one is syndicated credit facilities with a group of banks and not a single bank. And we should have other instruments and promotional loans as the European Investment Bank loan. And this is nearly fulfilled. We do have these 3 pillars: capital markets, 21%; syndicated loan, 45%; and the other with 34%. They are all balanced, and they cover -- and the long-term net debt was always the measure that should be covered from the capital market. I will comment on that one. And we believe that this is a very good -- or I believe that this is a good starting point going forward.

In our facts and figures, we do have around EUR 700 million. We do have EUR 200 million here from the capital market. We do have European Investment Bank loan. We do have here real estate leases in there or financing. Then we have the credit facility. Net debt is EUR 250 million. EUR 200 million cash brings us to EUR 450 million. Maturities are well balanced. We always say or I always claim that I would love to have a maturity of EUR 50 million to EUR 100 million every second or third year, that if I don't invest in the business A, B, C, that I can take the money and invest it into the capital structure. The one which is coming around and might come around is now the put option from the convertible, which is lasting until 2022. Might be that the see as a repayment, that would be the one maturity, how I'm going to claim it. And then we have to work on the high-yield bonds where we have repurchased EUR 55 million, EUR 150 million is in there. And to -- from today, it's more or less 3 years or 3.5 years maturity. Afterwards, we do have the RCFA. And the message there is well-balanced, normal maturities and opportunities to work through the maturities and, by doing so, also having the option to reduce the interest cost going forward. So in this environment and from that perspective, I feel that this is a good setup for the company going forward.

One issue which a lot of -- or which nearly any company who's following IAS will have in the next financial year will be the application of IFRS 16 on-balance accounting for lease contracts with the lessee. As we have worked with our buildings, the effect for Heidelberg will be less important as we wouldn't have done all the optimization in the infrastructure. What you will see is that we will have EUR 50 million to EUR 55 million increase as liabilities, which will come on balance. We will have an increase in EBITDA due to the depreciation of about EUR 15 million. What I also commented in our conference calls concerning the preliminary numbers, we do have the interest proportion of about 2%, which will come into the financial result. And obviously, net result before taxes will have no impact by what was beforehand in as lease and lease obligations as rent that now we have reported as depreciation and on the interest proportion, with 2 of the line items.

The improvement on the different -- declaration of free cash flow will be -- as the financing component will be moved over into financing activities or change in financing instruments. That's why also indirectly, the free cash flow will be shown EUR 50 million paydown. That will be the impact on the cash flow statement.

What does it mean on the outlook going forward? We do have increasing economic risks and weakening of order dynamic while we have some clouds around. We do take a more conservative approach for the ramp-up of the digital printing business, and we do see declining trading business with consumables. These are the ones where we state that might be negative points going forward. Positive is still our robust core business, with sheet-fed offset increasing demand in China, good print trade fair feedback and solid business in the U.S.; EMEA, weaker due to U.K.; Germany, we would have to see in the year before drupa. Digital business ramp-up -- sorry, digital business model now ramping up. This will help us going forward. And we will have the positive effect of the operational excellence. One big example was the consolidation of the plant with Wiesloch-Walldorf, which I showed you as an example.

What does it mean in total? We expect that sales are, in this year, will be on previous year level. EBITDA margin, which we last year targeted for 7% to 7.5%, will be, in the same profitability, now being reported 7.5% to 8%, while we just have to include in EBITDA margin the impact from IFRS 16. And net result before and after taxes, no impact, while here, we do have the countereffect in financial result and in EBIT. And there, we have the same top line, same profitability. We also target the net result on the previous year level. These are the ones.

And now, I would hand over to my CEO and then happy to answer your questions later.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [4]

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Thank you. Yes, I will not present a new strategy. I will give you an update, but I'd like to introduce, seeing that even we all more or less felt after almost 10 years of stable business with some clouds on the horizon, that there's still some cyclicality in the business. So we feel very much confirmed with our strategy, Heidelberg goes digital, which will take out the cyclicality of our business.

So we still follow through with Heidelberg goes digital with the strategy. Remember, it had 3 components. So one was growth through innovation, and that's partly the continuous development on Smart Print Shop. And the second big part where we spent significant money, half of R&D money, is digital printing, which from my point of view is something with no alternative because this technology has, in the long term, in the next 5 to 10 years, also the potential of disrupting offset printing to a certain extent. Subscription, we started. The subscription business is growing, increases our independence from the economic cycles. Digital printing, unfortunately, is growing up a little lower than anticipated, but our core business, sheet-fed offset, is very stable, very robust. And we have some nice new ventures I'd like to report, which have a significant growth and profitability potential. Of course, they are small, but we started them and they're moving forward. And last not least, the operation excellence is still there, increasing of efficiency.

So the strategy: growth through innovation; second, growth through digital business models, that's subscription and everything around that; and the third, operation excellence is still in place. It's confirmed. It's more important than before. We developed and refined, of course, this strategy in the last year and, move forward, implemented many things, created the basis for implementing the next steps. And we also basically formulated our vision that Heidelberg will not only be the provider of the machine and the services around the machine, but that we have the opportunity to build the digital ecosystem for the print media industry.

What does that mean? By the way, you will see the HEI. OS, the Heidelberg operating system already on drupa with the first functionalities. But I will explain to you what is behind that, what is the vision for Heidelberg, where we want to be in the future.

Of course, I'll start with the product. The product is still there. Heidelberg was growing to what it is with excellent machines and that 60 years ago, it started. Heidelberg was one of the first to produce intelligent product with the Prinect software suite, with the workflow with an open controller. So Heidelberg has the advantage. We elaborated on that. We get the data from our customers, who are be -- expect we know everything. We are not in the -- in a trap. And already in 2008, much earlier than anybody else, Heidelberg started to connect the machines, connect the intelligent product to the cloud of Heidelberg, offering additional services, allowing us to know exactly what's happening. And this is, of course, also the basis to run a subscription model because of course, you can run a small subscription model with some experts. But starting at a certain point, in order to scale it up, you need the data. You need to automate. You need to run the business by data. And that's where we are today. We are building the systems of products with the Heidelberg ID, which we created, with the Heidelberg OS in the starting point, where we include all the functionalities, the Heidelberg Assistant, the automation then, of course, also the order management, the process management through the shop, the consumable, the e-commerce business and, last not least, even the subscription business.

So we're moving forward. And the next step, and then we will start becoming the ecosystem. We not only offer to our customer the services of Heidelberg but also the services of other partners, of companies making ink because we learned through subscription, there are some customers who say, we like subscription, but we want still the ink from A, B, C, D or the plates from somebody else. So we developed this one step further and say, we got the platform anyhow. We got the data. So invite -- we invite those other systems, those other suppliers to run their business via the Heidelberg platform, use those data, and that's paper, that's all kinds of things that could be grown so far that at some point manage the demand, manage the supplies, all the different supplies, resource and waste management, all that. You need the data, and the one who has the platform is the one who can ask, of course, for transaction fee and knows what is happening.

We all know already, in this world, there are such platforms. For instance, you got one from Apple called iOS, and you see there are many services basically operated by iOS by Apple. Where somebody does business with you using their platform, of course, Apple makes the money there. Or the other one is Android, Google. Same story there. The one is more closed, the other is more open. How is it going to be more open?

And to move forward quickly in that technology, we just -- you read it probably, acquired the start-up, Crispy Mountain, and helping us to get faster this functionality into the cloud and building the system, which supports basically the Heidelberg system, the Heidelberg services and the Heidelberg subscription models.

And what we did to move faster into the contract business, we added, we built up a modular structure for our services. Probably in the sense of the picture before being part of the -- of such an operating system, all starts with an ID because you need -- we all know that, regardless in Android or in iOS, you have an ID. Otherwise, you're not there. And we started already to convert the software from contract licenses and maintenance to service -- Software as a Service. We are building at the moment service contracts, which are demand-driven and more acceptable to our customers, so we can grow our service contract business. And we added to the complete subscription already life cycle contracts that we supply, based on our platform, all the supplies the customer needs to make his life easy because we have one problem. Dirk has mentioned that, that the transactional trading business of consumables is under significant pressure because the company is manufacturing the ink, manufacturing the plate probably to save money and eliminating the dealers going directly to our growing customers, which, of course, is natural. Everybody doesn't want to do that. So we need to find an added value, so the customer stays with us or even comes with us, and we found that.

So with this approach of building a platform and offering more services, we offer to the customer a value. He doesn't need to order and then process these things anymore. If you have a vendor-managed inventory basically, that's one thing the customer has a benefit for, and that's only the one that can do who has the data. And that's Heidelberg. So that's what we have started quite successful, and we are talking already to several manufacturers of ink, even of paper, who want to join on this platform in the future.

Overall, the subscription, which was kind of the starting point of this digital business, has started very well. The demand is growing as we go. And more and more customer understand this is a big benefit to them and, of course, also to us. And we can prove in the meantime with the first installation that this is really a benefit to the customer.

So you see here, we have 2 examples. It's pretty independent. If it's a small machine or a big machine, with the Heidelberg support and help, you can increase all the KPIs and increase productivity and increase the profitability of the customer. So let's take here this XL 106, the minimum agreed volume, where it is 1.66 million sheets per month, we achieved in a relatively short period of time the growth of 26%. Of course, it's different. It's not all the same with all customers. If the customers starts slow, it's easier to move them up. But we improved all his data, all his figures. And I think the most important ones are make-ready time and one which is even environmentally quite of importance, it reduce the waste, the make-ready waste significantly, 32%. And that is like 90,000 sheets a month, which is also, I think, quite an environmental achievement and, at the end, of course, also customer's achievement.

So subscription means stability for the customer but also for Heidelberg. We will expand and we have already proven to get significantly the reoccurring revenues. Already 8% of our today order backlog is subscription contracts. Currently, we -- as I stand here, we have a volume of 1.2 billion printed sheets under contract produced by those subscription customers. And not all the 30 contracts we achieved by the end of the fiscal year as we targeted are already operating. There are still some machines which will be installed in the next weeks and months.

And in Germany, I think that's also quite interesting number. We increased, due to the subscription business, the consumption of consumables which we deliver to our customers by almost 10%. The goal is, in the midterm, to turn 1/3 of our group business and 2/3 of our life cycle business turned over into contract business and make it reoccurring and stable. So we basically avoid or we compensate and hopefully strongly overcompensate what we lose in the transaction business where our suppliers, who are the manufacturers of ink, plates and other consumables, try to cut out Heidelberg as basically a dealer.

We see also, of course, that in the beginning, because we have not that long of a history, that the average profitability is expected to be higher than in the transactional business, but this is a little early to say, but it looks like that. And we will, as we go on, as we can confirm that more in detail, report to that.

And I think a very good news is also we closed the first contracts for the externalization of the machine component from the contract. This allows us to move ahead with this program because we get those machines in future of our balance sheet, at least in the majority of the important markets.

But that's not all what we did. Heidelberg recognizes that the world is not one world as we see all around the world. China is a closed universe, and the rest of the world is a closed universe. And that has led to that in the past in our most important future market, China, we had a very good and still have a very good machinery business, but a poor consumable business, still poor service business and, at best, an okay spare part business. Because in China, they are very busy people, there is always someone who does it for less. And if you cannot offer some unique advantages, you will not be able to get this business, at least not at margins where you can make a profit.

Also, this applies to our e-commerce business. Heidelberg has, all over the world, a quite successful e-commerce business, returned EUR 120 million of that. In China, it's close to 0. Very simple: Western systems, even technically, don't work in China. So we decided to declare China as their own universe, the rest of the world as the other universe, but we want to have both. And we started, if you will, our own e-commerce business, our e-commerce platform in China. And in addition to the Heidelberg Digital Unit and Heidelberg in Wiesloch, we founded the Heidelberg Digital Unit in China for the e-commerce expansion in our growing Chinese market. And we did it as the Chinese would do. We did it on the WeChat platform because that's the only one which offers all the solutions, including the payments system and everything. And it is trusted by our Chinese customers because everybody uses it in his private life as well. So if you have been recently to China, cash is not existing anymore on the daily life. I just recently had to get bailed out from our -- from my colleagues because I couldn't pay the taxi, and the taxi driver didn't want to take the cash nor the credit card. He wanted to have from me WeChat Pay or Alibaba Pay, and I didn't have any of those.

So we had the guts, and I'm proud of this to say, okay, let's do in China what the Chinese do. And it's starting quite successful. We had -- it's starting to take off during the PRINT CHINA. And we are building now a very fast system around, which, on the one hand, goes along the customer journey, creating the digital omnichannel, all the touch points. We manage our business with that, helping our sales force to become better and more efficient. And we'll increase the efficiency of our sales force in China and build our marketplace. And by implementing basically also an ecosystem within China, we will, I'm very certain, grow the life cycle business that we didn't have a chance before. Now we can offer to the Chinese people a significant advantage because also here, this is something what the Chinese supplier of plates, of ink, of consumables cannot do. So this is the future, and I think Heidelberg is one of the first, maybe the only one, at least I know, in machine industry, who has done this step, which I think is the only way if you want to be successful in China. You have to do it the Chinese way. It's its own universe.

Coming to digital printing. Digital printing, as I mentioned before, is the area where we spend the most money for the future. We invest half of our R&D budget basically within this area, and it is contributing very little to the turnover and very little to the profitability that actually, it still costs a lot. However, not to do it would be dangerous because it would jeopardize Heidelberg's future under certain circumstances because this technology, inkjet printing, has the potential to become disruptive because one hurdle, which was always the hurdle in the past, to say offset will be forever because digital printing cannot achieve the quality of offset printing. That problem is resolved. That problem Heidelberg has resolved.

If you look what's -- on Labelfire or Primefire, what quality we can achieve, it's even better, and you can do prints you cannot do with offset. Of course, it's still a lot more expensive, and that, of course, needs to be resolved before it becomes disruptive. But even for that, the ideas are there. And if Heidelberg can do something like this, sooner or later, somebody else would do this as well, so we have basically no choice. If you want to be around and successful to follow through with this technology, make it work and bring it to the market. The markets are there. We have looked very much in detail into the market. The biggest and the easiest one is the offset transfer for the low-run volume sheets. That's certainly something we have to push as quick as we can.

Next step is mass communication, then the serial production where you have to have the individual numbers, ID numbers, so you can follow up with that. That's the very important part if you go into pharmacy printing and, at the end, the very individual printing of packaging. That's, of course, the king class of it. We did probably the mistake to start with that first. That's the easy one. We started to speed up our digital -- the penetration of digital printing into our market.

But we have also done a lot in order to move and push this technology forward. We have also -- that also will become a part of the Heidelberg operating system of the IOS. We created in the last year scalable Chinese partner, the cloud-based net-to-pack platform and that's for you to understand somewhat close or similar to what we've seen 10 or 15 years ago with web to print, we have a digital platform where you can place your orders, where you can buy and design your boxes and they go right into the machine. And that's what we have created, what has started and presented that also at the Print China. And it offers to all the people involved in that business, a lot of possibilities. It's called boxuni and it was launched just recently at the Print China.

The packaging design, you get tools to design the packaging you want, the packaging print to get access to short-term orders and get data right from the platform, right into the machine to run the machine. And the print buyer, he can choose from hundreds of boxes, he can individualize them and very easily order them.

So even a packaging printer who doesn't have a Primefire can start to build that business, he can order these small quantities of boxes already from one who has already the Primefire. And of course, this is a platform we started now with the Primefire. This is a platform, which, of course, we easily can open up to a Speed Master sheets, that offset machine at some point, running packaging.

That's the big advantage because having the workflow, Heidelberg has now the digital workflow and the offset workflow, we can decide whether to invest if it's likely to go this way or this goes that way depending on the volume or even the one day this, the other day that way. So I think that's going to be a very, very important element for the future and that's part of the digital transformation that we have made big headway.

Another part we have started, which is quite important is for the digital transformation is the application of artificial intelligence. We have -- since many years, we saw, since 2008, we connect machines to Heidelberg cloud, so we have lots of data, but data has no value as such unless you create information, which is value to somebody.

And we have started to use artificial intelligence to search and find pattern in the Big Data pool we have from these thousands of machine in different constellations and operations in order to generate the optimal settings. And these optimal settings are the ones we're going to use first for our subscription customers, so the machine is being set automatically at the most optimal stage. And of course, you might even sell them the next step, even to non-subscription customers, if they paid for that to get this information.

But this is what digital transformation means, collect the data, use the data, turn them into value, or as we have those data for our Heidelberg operating systems, to use the data and helps the people who sell paper to our customers, not to rely on their dealer but to get the data and really do all the processing with the data, and of course, we'll get a transaction fee for that.

We're not doing much different like Mr. Bezos, as Amazon does. He has the data, he has the customer, and there are some companies behind or has -- have lost in the meantime completely their access to the market and he does it so well. The customers buy it rather from him than from the manufacturer, and that's basically the target of our strategy.

The other good news I can report since the last year. Another breakthrough technology or at least another technology with breakthrough potential has moved into stage. The field production will start soon. May be you don't know it, but Heidelberg is shareholder of that innovation lab in Heidelberg and the innovation lab there from other shareholders like BASF, like SAP and some others. And the intention was to print organic electronics. We've researching there for 10 years. Now it's turning into a stage of industrialization, and Heidelberg is, of course, the industrialization partner because it's printed on a Heidelberg machine to be exact on the Gallus machine, on special-designed Gallus machine.

And we print electronics, then we print sensors. Sensors for all kinds of applications, mass-produced sensors, very cheap, organic, so we can throw them away. There is no waste. If you have a chip on silicon, labor, of course, that's expensive and that's waste, you don't need that.

And the first project has started already. They are building right now the clean room for that. The machine will be installed soon. And by the end of the year, we will print sensor for medical -- for dental-medical application. And what it is that you understand by me I'll explaining that it's a sensor, which replaces the blue ink and the sheet, which the dentist uses to adjust the height of your teeth because there's is problem is if that's not done properly. Your -- the muscle of your mouth is the strongest muscle in your body and it will distort your whole skeleton if that's not done right.

So it's very important that you do it right. And we deliver to the dentist in the meantime, this technology is a perfect measuring method. You bite on it, and you get a very detailed graphic with the mountain of the pressure, which represents the different heights of the teeth, so the dentist can very easily eliminate that and do a very good job. This has started and believe me, this is a high-margin business. It's still small, but the potential is huge. And we're not selling the machine and the technology, as we do that we offset printing or with digital printing, we print the sensor.

We start here in Germany in Wiesloch. When the Asian markets will starts a year or 2 from now, we will do a second production plant maybe in our [Xingfor] facility and there's more to come. The medical project is just the first one. There are a lot of projects in automotive, in healthcare, in smart home and logistics because what you can do is very inexpensive sensor, which can measure pressure. So assume, the robotics will move further and further into collaboration of human with robot, which is a big trend in the industry.

Today, you need very expensive sensor technology to make a robot safe, so you don't need to put them into a cage. With our solution, and it's almost finished, you can basically cover the robot in this very inexpensive foil center and you get basically skin similar to the skin of a human. So as soon as you touch him, he will stop and not hurt you.

And there are so many ideas behind that. This is going to become the business, and we're in the center of it because we are industrializing this business.

So I hope we can report next year a lot more about that. Then also our charging technology, it's nothing to do with printing. It has moved forward quite a bit. Of course, as a capacity -- and as to increase the capacity, the load on the electronic factory, we have already, quite some time ago, produced charging technologies for automotive manufacturers, as OEM or as Tier 1 supplier. And last year, we started promoting our Wallbox directly at Heidelberg Wallbox and we sold without any sales effort, without any sales structure via Amazon and some other, more than 1,500 of those boxes.

It's very interesting, very different to what we hear regularly from Heidelberg that we're expensive. This product is, not only the technically best on the market, it's also the most price-competitive one. And if you look into the box of Heidelberg and into the box of the other TCY, in the Heidelberg box, almost nothing in it. There's is 1 PCB, 1 board with some electronics on it. That's it. Smart solution because Heidelberg has the technology and the knowledge how to do that.

If you look at the other boxes, it has installation technology, a lot more expensive, doing the same thing. So if you apply a smart knowledge and get a product, you can ease that probably higher production costs. Higher development costs produce a highly competitive product. So that was a win, but also we won the order for the -- for equipping the Eagle, you know the new small town car, electric car built in [Achim] built by Professor [Schuwan] and his people, so we are the OEM supplier for that car, which is starting production as we speak or as we go, and we'll ramp up hopefully soon.

And I'm sure this will not be the only OEM in the future, we'll be talking to many.

So that is going to become business on its own, and at some point, we need to probably take it outside of the Heidelberg AG to give it the room and the power to grow faster than today.

Also in operational excellence, our efforts have continued. The efficiency enhancement projects come along well. Dirk Kaliebe told you a little bit about what we did to the building saving us from it's fixing to a certain extent, but also reducing the operating costs.

But there is more. We have still a lot of, if you will, more or less empty spaces in Wiesloch, which for the next 100 years, will not be able to fill anymore with machinery production because not only that the machinery numbers is not growing as we all like, we can also, today, produce machinery more efficient on much smaller space. And then so 2 things will reduce the space. So what to do with all that?

We do not simply wanted to sell it and get rid of it. We have decided to build a hi-tech campus, internal -- digital campus of things. And the first company we locate there could be our own or maybe would be our own company's printing electronics, making eMobility charging technologies and other things. And It is in the process of starting here a project to find companies on the campus where we can sell, not only the services, but also our engineering and manufacturing solutions, which we have plenty of at Heidelberg. So that's the project we have started, which will move forward very quickly.

But also the not-so-nice and more digital things have moved forward. The streamlining and -- of the operation and improvement of the structure, we have implemented quite a large number of early retirement programs, so we can overcome the situation of that in 3, 4 years, a large number of people is leaving the company into retirement. So we pulled it forward to move earlier into the possibility to improve our manufacturing footprint, and at the same time, make the know-how loss more manageable.

So we have -- we've lost an incredible number of almost 400 early retirement contract, which cost us a fortune right now, but will help us next year and the years after to come where we can basically reduce this, the manufacturing debt, where we can reduce the work -- the workforce, the expensive workforce in Heidelberg and move step by step some of the products, which you can easier and better manufacture somewhere else out of Heidelberg and keep step-by-step only in Heidelberg, which is high-tech, which is new, which needs proximity to the R&D and to the customer.

So this is all started. And of course, it takes time because early retirement means it starts with the active phase and then after some time, they leave, and after a lot of time, they're gone. So we -- but we started that because with -- in Germany, you know with people 54 years and older, it's the only way to get rid of them if you have to.

But it helps to improve our manufacturing footprint. Also we achieved a labor agreement in Amstetten and maybe we get few hours per week for free in order to lower the cost. So we are more competitive to fill the factory with external industrial orders. Remember this is a big foundry and manufacturing for large precision components.

Already today, we achieved 40% of the load. It's not Heidelberg anymore. It's outside load. There's still 30% capacity available, so we could cut a labor agreement with our workforce to fill this factory, to reduce the cost, of course, also for the Heidelberg parts to make the factory more efficient and that is moving along also, so we had some good results there.

We are adapting our sales structures to the new business model so in order to sell subscription and sell contract, you need to enable your organization and you've seen that on this chart with Heidelberg digital view in China. We support our sales force more and more. Also this data, so digital transformation is not only build platforms for our customers but also use data to improve the efficiency of our sales, so that's going on. And we're in the midst of realizing quite large project of shared services where we move out of -- where we concentrate and move out all the simple jobs out of Germany, out of Europe and concentrate them in case of the Europe, in Warsaw.

In the rest of the world, we do it in Malaysia. In China, we have started quite successful with many financial functions and more will follow. Of course, there are some where it doesn't makes sense where you outsource it to somebody who can automate it with artificial intelligence. So for instance, to move out payroll and you should have done that maybe 10 years ago. Today, in the next year, this will be all automated or with artificial intelligence and that's coming.

Anything, which is routine, which follows clear rules, can be automated in future and you can save significant costs.

So our goal is profitable growth and improvement of efficiency. We have started, of course, all the programs in case the economy slows down more than we anticipate, to save money, to secure profitability. And I think the organization knows quite well how to do that, how to create cash. We can do that. The programs are all being created right now. We need a contingency plan. I personally don't believe that we need that, but you better have it. We are prepared even if we would see a stronger slowdown of the business.

Situation, I think we can summarize the core business, sheet offset is stable. The profitability is very good. If you would take away all the expenses for the future investments, that's the digital printing as a whole, that's building those platforms, the core business would be highly profitable, but of course, a model is without future because it will -- it has no growth. It will, at the best, stay stable, most likely decline and digital printing might become a concern.

Subscription is growing and increasing our independence from economic cycle. This is a business -- this is regardless from technology. It has moved away actually from the machine. It moved into our customers, and we can starting to make more money even if businesses we are not in if we are on the platform providing the data and managing the business of other people.

Digital printing is ramping up. The market is there. We've got, in total, 30 digital machines in the field. That's less what we anticipated, but it's still significant, and we are probably the only one who has the machine. Not probably -- we are the only one who have the machine, who is reliably working and producing sellable quality. Of course, still not in the extent as we like to because the business model, if you remember, is making the money with the ink, and therefore, the machines need to be in place and need to produce the best around the clock, and there is some ways to go.

The new entry, there are some more, but these are the significant ones are presented. Also they are very promising, and we will separate them and give them the necessary attention, so they grow very nicely.

And operational excellence, of course, that's the homework that needs to be done. That's restructuring, that's saving, that is realigning the organization. Many, many things are done already. They don't show much efficient -- they don't so much affect yet, but as I mentioned, like with the early retirement plans, they show the effect starting in a year or 2 or 3, increasingly, the effect. Today, we see only the cost of it.

And what is the roadmap? Step-by-step coming from the intelligent machine to the system. We are building right now around the Heidelberg ID is providing our customers with all the Heidelberg systems, with the Heidelberg services, over the Heidelberg Heidelberg systems managed by data, we use already now step-by-step into system-by-system into the Heidelberg OS, the Heidelberg operating system.

And of course, we need to hurry. We will definitely move forward and show the first life advantages to our customers on drupa because like always in the world, you're not alone. There are other people who have the same idea. They're are not many now in the industry. Actually, none of our direct competitors can do, but there's such a company called Hewlett-Packard. They have a similar idea. They have also the HPOS. They follow the same idea.

And what I don't want to do 2, 3, 4 years from now that the customer comes to us and says, please open up the interface. I want to connect my Speedmaster to the Hewlett-Packard operating system. That is something we will avoid.

Through the acquisition of Crispy Mountain, the startup who specialized on building those clouds for these applications, we could gain speed. We basically gain 3 to 4 years by doing this, and I think that this capability will be not only in digital printing but also the first when it comes to building a platform in digital. And we're also the first in digital transformation.

So thank you very much for your attention.

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Questions and Answers

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [1]

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If you want to ask the question, then please use the microphone in front of you and please state your name and the company.

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Malte Christoph Schulz, Commerzbank AG, Research Division - Industrials Analyst [2]

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Malte Schulz of Commerzbank. I had a question on the AI issue on cloud number. [Is it] with regards to benefit for a plan which you could see repairs itself. I mean, I have a sense that for predictive maintenance, you need a whole lot of data, tons of data to really have an edge and really to generate adequate value and I assume that the data that are generated on your installed base [can predict] but I would assume that [it's done also part] of data that you would need for predictive maintenance. So my question would be and I understand that this is a different issue, it's about the correct installation, but my question would be can you quantify the benefit [for the time, the sort of] productivity gains [for users of the] data that you are going to sell [or some flavor of whether this is fee for the plant or what could that be?]

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [3]

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Yes, that's basically the beauty of the subscription model. We are benefiting if he operates the machine better and without our help. And now you can do it 2 ways. You can go there and send your experts, which is costly, which takes money and we've done more or less in the past as a consultant.

With using the data, which is originally is exactly as you said, the originally meant to do preventative maintenance. And I say jokingly to know the machine feels, so you can fix it so before it breaks down. You can also find out because a machine today has up to 3,000 sensors. So we know exactly what the machine is doing, what are the settings, what are the performance and everything. We can release data, find the pattern, what are the settings of the machine, for what application, for what productivity.

We can see what the productivity is not accepting from over there, so we learn from all those machines, and of course, there's some huge number of data we're not able to do this manual anymore. You need basically machine learning who find these patterns. And the benefit at the end is that what I saw there with subscription, the productivity goes up, 20%, 30%, 40%, 50%, we sell more consumables, the customer also gets more profitable.

That's basically what I meant. You need those data to make a business model like this scalable because you cannot afford it and you not even have enough experts to support hundreds of machines running in this concept.

Of course, The next step when you have basically this experience, you might offer the service even, of course, again some money for customers, so not even in the subscription -- that business, but we have started first to support the subscription machines.

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Malte Christoph Schulz, Commerzbank AG, Research Division - Industrials Analyst [4]

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Good to know. Maybe 1 follow-up, if I may, on the contingency plans, which you mentioned that you're about to, say, think about, but for me to make help me understand what's risk factors -- the typical risk factor for [all those] connected fee. Can you give me an idea about, say, your fixed cost, your incremental margin for EMEA, Europe that [you want to isolate] in terms of sales and how much of that you put compensated by your contingency plan?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [5]

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Yes, any company will always have contingency plans and up to now, we do see stable volume in core business. We do see the ramp-up in the digital business. Nevertheless, we are preparing ourselves with contingency plan so put just temporary in the first step A, B, C, D as we've done it in the past.

The message from our CEO was that we are going to be prepared because it's simply necessary to be done so. As we cannot foresee where it comes, when it comes and how it comes, it's too early to say we cut in here, we cut in there, we cut in there. Now we've had very good feedback from the trade fair show in China. We have a good sentiment so far and sentiment from drupa in advance.

Therefore, we're just going to be prepared, but there's nothing to be calculated in details to say we're losing EUR 100 million or EUR 200 million top line. Normal margin will be 10%, 15% or 20%, but then it would be define about the mix and then to so the internal contingency plan. And to give you the feeling Heidelberg has always been prepared if it's necessary to be implemented.

And we do we have EUR 20 million reserved for restructuring for early retirement plans. If you would have to do, you could also shift. You can do other things. So you would have also to keep this in mind that there's a certain precaution being reserved in the P&L, what we said here, that we can also reallocate to other areas, as much as we know where about to adjust [according to our] experience.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [6]

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Yes, but I think what I think is important, what I'd like to mention is it will not kill the strategy. It may slow it down a bit, but it will definitely not kill it because this strategy will make Heidelberg if we get into this reoccurring business a lot more robust against economic cycles. And as we've learned, they're not gone. We had almost stable business for 10 years now. We still have, but right now, there are some clouds that we don't know is it going to rain or not.

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Gordon Schönell, Bankhaus Lampe KG, Research Division - Analyst [7]

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Gordon Schönell, Bankhaus Lampe [on phone] so far. Can you confirm that it is still your target to get additional 70 subscription models in -- or contracts in this fiscal year? I'm asking because you do not reiterate with the target in your press release in the morning?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [8]

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To increase our contract business is definitely the target. Maybe we will have not 70 clear [post] subscription model contracts, but we might 200 more of supply contracts. As you've seen in my presentation, we expanded our offering significantly. If the economy goes well, we might have these and some more on top of them.

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Gordon Schönell, Bankhaus Lampe KG, Research Division - Analyst [9]

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Okay.

(technical difficulty)

You gave some outlook numbers, but given the last year, it's probably very important and there was a lot of talk about the future, but if you would present another year like this one or the last one, you may close the door in the next year.

So if the situation is severe, and therefore, I would be interested to know how you are going to reduce the working capital again? And how you are going to reduce the investment again to be able to reach possible positive free cash flow?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [10]

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The summary, I wouldn't [under-assign] coming to your question how to reduce the minus EUR 93 million. That's one thing. When I said Rochester was a one-off of EUR 15 million roughly, [1] about cash-out, which was taken out of provisions so no impact on the P&L.

I said you've roughly an increase in net working capital through the buildup of the digital business, which from our perspective is not coming in the next financial year, so another EUR 40 million. And I have tried to explain that R&D -- investment for the R&D innovation center plus PMA is coming up to somehow EUR 30 million. This brings you in total to EUR 80 million, EUR 85 million. And then it would be depend if I would just take subscription, which is invested into the future, how fast we are willing to externalize.

So with just these 3 elements, I would love to say I could draw a chart here that the last year could have been like 0 and if it wouldn't come, the innovation center is not coming, net working capital, in general, in this regard is not planned to come and the Rochester will not happen, we are close at 0.

Then it depends if you invest a little bit more there or a little bit less there, if we can tell a little bit of this, locking up some capital, optimize further our net working capital. So in this regard, I'm personally confident. If I look into our net working capital in total, I can take all the elements in raw materials, unfinished goods, finished goods, spread it around the business model and takes a down payment and take some other components in there. So this is all under control, and it's being managed, and therefore, I would say we are confident that we are substantially improving that one, but the negative impact wouldn't be there as you might have asked for or it might have been presented. Sorry if it was shown in the wrong way.

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Gordon Schönell, Bankhaus Lampe KG, Research Division - Analyst [11]

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So I wouldn't follow your analysis. You have to refinance a big chunk of your debt in 2022. And if you don't be able to come to positive free cash flow, that will be difficult. So there is clearly a risk. We can talk a lot about the future, but if the financial stability is not given, you face a risk and there might be no future.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [12]

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So I would have do a second presentation, but taking your point very serious. I would love to take from Page #12 from the people outside.

(technical difficulty)

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [13]

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Sorry, my microphone once again. The maturity which you ask for obviously is totally correct. It's coming in the calendar year 2022, EUR 150 million, which is our high-yield bond. We do have 3 calendar years beforehand to adjust for A, B, C, D and F. So therefore, I'm confident while having the experience what we've done in the past that we can have -- that we do have, on the one-hand side, EUR 200 million cash on hand, EUR 200 million.

Normal operating cash is EUR 80 million. So I do have excess cash. If I take a black 0 for free cash flow for over 3 years, EUR 120 million. So I wouldn't have to say that this is all being done, I'm just going to say there's is opportunity for management to invest still in the acquisition of Crispy, which was not double, single-digit versus one single-digit million.

There is opportunity to sell out subscription contracts while I have a framework agreement with the first [signed] organization. We're close to sign the second agreement with the next organization. If we're running shorter on cash, then we're doing just normal selling of equipment. So there are so many opportunities where I don't have any risks in here.

At a certain point, you will have to finance, but we've always been in the position to refinance EUR 100 million to EUR 150 million, keeping in mind, EUR 120 million cash on hand.

If we went to minus EUR 90 million, I'm totally with you, minus EUR 90 million, minus EUR 90 million, minus EUR 90 million. That's not working, but we've done this on purpose, we have said we take a budget of EUR 50 million for subscription last year, towards the first block and then we can outsource. We have done on purpose the investment them into the R&D building where we save EUR 10 million of cost, now it's gone. So we take it serious. Cash is king. Profit is opinion, cash is king.

(technical difficulty)

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Gordon Schönell, Bankhaus Lampe KG, Research Division - Analyst [14]

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I got good forward research. I've a question regarding the slower ramp-up of digital printing in your guidance. So correct me if I'm wrong, but I think 1 year ago, you told us that you had the 2 years order backlog for the Primefire. So did you have some cancellations in this business? Or what is the behind this slower ramp-up?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [15]

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The list of LOEs and -- has even grown the interest is there, but people push out the delivery. They say, we want to wait another 6 months. We need to build first building. That's usually the excuse. So one thing, everybody wants still to wait. The interest is high. The list is still long. There was actually no cancellations in that respect.

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Gordon Schönell, Bankhaus Lampe KG, Research Division - Analyst [16]

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Okay. And with regard to your long-term guidance. So in the last presentations, you had a goal to reach up to EUR 100 million net profit medium or long term, but this is no longer included in your presentation. Is there a reason for that?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [17]

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Looking at the current economic situation, it's going to be very difficult to really foresee what is going to happen in the next 4, 5, 6 months, and everything might be okay, but everything might also end in a downturn. And then of course, it will be not possible. That's why we basically, at this point, don't really say what's going to happen in 2022.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [18]

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We will grow. We don't know how fast. We'll know more maybe in 6 months.

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Unidentified Analyst, [19]

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You mentioned that digital print would now be at the edge of being really competition to offset, well we hear this story for quite a while. Quality is, of course, one thing, but cost I think is the main acumen and you already mentioned that this issue is not yet [first.] So how do you think the can be solved because as far as I understood, the price of ink, which -- and that's the price of the printed page, which is too high and digital print will offset, which is a big gap, which could not be bridged so far.

So how really will this -- would be possible? But what happened because if the price for the ink, for inkjet would decline, then on the other hand, you're not of the expectation of making the money with ink subscription contracts, with the obsolete products obviously because if you don't earn more money here. I think this is in contract with the [work.] So should we see this?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [20]

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Well first, disruption happens always very suddenly. So you all remember picture tubes and flat screens. They exist -- they coexisted 15 years and then within 6 months, the whole picture tube business fell apart, and that's may be not comparable situation, but that is -- the situation is -- and it was also the quality and the cost, the same basically figures.

So for long time, technologies coexist, and we will see that as well right now. Of course, offset seems to be safe so far, but the cost issue can be resolved and what is technically thinkable, we actually know what to do and these are 2 factors.

The factor #1 is to make the machine more productive. The cost of the machine, which is not really the -- the more significant cost becomes less influence. That is something, which can be done. We know how to speed up from 3,500 maybe even to 7,000, 8,000 that would do it. And the other thing, the cost of the ink is more -- not only cost of the ink -- it's price of the ink that's the politics.

And of course, there will be a significant economy of scale when the quantities go up, so it is the question between the pricing strategy and volume when you can achieve what. So in the beginning for the next years to come, nobody, not Heidelberg, not anybody else, will reduce the cost of the ink really significantly.

Therefore, because this will not, in the beginning, increase the volume of the ink and the machine unless this technology is fully accepted across the board for all applications. That needs happen first, but then at some point, exactly as what happened with the picture tubes, the conversion at a certain point, when the quality there, when the acceptance is there, when everybody knows it is comparable, my customers accept that it can happen, and we need to prepare -- we need to be prepared for that.

The business model also we're extending in the future because when the cost is lower, the price can be lower also. And when the volume is bigger, of course, the business becomes bigger. And the -- in our simulations, we have, of course, all those metrics in. It's stays a very nice business, but you first need to get the machine there, then the machine needs to be kept in operation. That's required, that the customers, all customers accept that technology. Because it's packaging, it's a little bit different than any commercial where usually the customer don't care how you print it as long as it looks good. Packaging, they want to know-how is printed.

There seems to be no more questions here in Frankfurt.

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Stefan Augustin, Pareto Securities, Research Division - Analyst [21]

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Stefan Augustin, Pareto Securities. Three questions. One is, can you outline a little bit what you exactly achieved in Amstetten and if this labor agreement to come into next years or to say the coming year's profits.

And the second question would be, can you clarify that with the refinancing of the subscription model that you can recognize the sales and profits of the machines in the time when you refinance it and that's this part is not yet in your guidance? And lastly, can you be a bit more precise on how good the China PRINT was for you?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [22]

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Let me start with the technical point of [it's been seen the] digital subscription. We have defined a structure where we are in a position, who at the contract, where we are able to sell machine to our leasing partner and where we can still offer the full value of the subscription afterwards to our customer.

So in this regard, the capital bounded all of the machine will be refinanced from our financing partner. Also bill it under the new accounting standards. Therefore, as long as we have the contract in the right countries, we are able to externalize.

On this regard, capital bounded can be managed. That's I'm saying we can still build up higher portfolio on our own balance sheet, but if we steer into the right direction Germany, France, these countries where demand is here, U.S. not in Timbuktu, there's no leasing company being recognized under regulations. There, you are able to outsource in this regard capital bond of the machine and the framework agreement was being done with the global leasing partner, what do we have, but limited to the industrialized countries, let me say it that way. Therefore, we are confident that they have understood the model, they do understand the economics. They do understand the cash flow behind. And if we are rolling it out, we have a good infrastructure behind that we can manage also the cash flow in there.

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Stefan Augustin, Pareto Securities, Research Division - Analyst [23]

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And when you refinance then, let's say, your package of 10 machines in France, do you recognize the sales for those 10 machines and the profit at that time where you refinance?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [24]

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Okay. This is also part of the guidance, well, included in our guidance where we say a certain kind of volume will be still done in our own camp. That's why there's still an impact on my free cash flow statement, why I'm going to say we cannot outsource everything. But as long as we take an assumption percentage A, B, C, D, this category with these customers, it's the normal business of what we have done in customer financing in the past. Now it's just a specific contract, which has to fulfill the specific words on the IFRS 16, but it's all negotiated. It's been signed. There is now the option to move into that direction and roll it out, but we will do it on purpose, checking the customer, quality, the business model, the profitability and all these things around what we have also done in the other financing activities.

(technical difficulty)

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [25]

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[That's what we should be.]

(technical difficulty)

We could present also the Primefire very well because the customer -- Chinese customer of Primefire was just close to the fairgrounds. We got several hundred customers visiting there. And of course, also presenting the web-to-box platform and it has created a lot of interest. No further Primefire orders in China yet, but this will come. But what it has and that's the direct impact, we had luckily to improve the planning for our Qingpu factory by 10%. We will produce 10% more than we originally have planned because the orders from the show needs to be, of course, all produced.

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Richard Schramm, HSBC, Research Division - Analyst [26]

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Schramm, HSBC. A question concerning the consumables business. You mentioned all the transactional consumables. Can you give us an idea on how big this business at the current stage is? And you mentioned that there is margin pressure. So is it still making sense for you to keep it in a strategic way? Or is there something you should try to get rid of as soon as possible? Because I was wondering how you, on the other side, will get the manufacturers of paper, ink, et cetera on your platform because, I mean, if they view you as competition, will they do this and pay you a transaction fee for business channeling through your platform?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [27]

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That's nothing new. There are also already today suppliers and competition in one because we don't manufacture any ink, we don't manufacture any plates, so we are already today -- we have 2 relations, one is as competition and the other is as manufacturer. So that's nothing new. It depends who owns the customer, and of course, the dealer, Heidelberg [and their team,] holds the smaller customer usually or the ones where we have a special relation to.

The cost pressure is there and some of the decline is not that we sold less square meter in plate, but the prices for the plates have reduced for the manufacturer, and of course, also for us and for the customer, also due to some pressure from plates coming from China kind of competing on a more and better quality level with the major plate manufacturers Agfa, Kodak, Fuji. So they're getting also some pressure from China in that respect. And as you are a dealer, you sell what the customer wants. So we sell also Chinese plates, same number of square meter. 2/3 of the price makes 2/3 of the turnover. It still makes sense for us because we keep the relationship with the customer, but it shows also -- if we can turn all that into a contract business, even a supply agreement, which is not any more linked to the input, but to the output, you escape this FD price competition where you compete liter ink against liter ink, plate square meter against plate square meter.

That's why we're pushing. That's why we expanded this contract model above and beyond just the classic subscription, all inclusive, to all steps in between. We can capture more customers. We can capture customers, and we have, who don't want to buy new machine because it's only 2 years old, but they still want to have their contract business for the consumables, and we manage more not to do so.

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [28]

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Yes. It's about value-added services. Somebody's just interested in buying the cheapest plate, he will go for somewhere, but then he would have to ensure that the quality of printout will work with all the components around. And this is exactly the business model which we are approaching, bringing the printing plates together with the machine, together with the service, together with the ink. There's obviously optimization potential and this is what you would try to bundle in and then partner with buyer behind as we have done it this past year, our brand in the past, where we exchanged one or the other supplier just to competition. And these were the measures we would have to bring over if somebody, as an OEM partner, is going for volume might pass or try to pass our sales. But in the end for our customers, not value add, if you just have the cheapest plate, he does have to focus on the print quality to bring down his total cost of ownership in the print shop.

This is what we try to show and this is why I have announced our chart from Klampfer as an example for subscription in total, where you can say -- where we can now show we have brought down the waste, which is paper, but which is also plates, which is then serviced in all the other things and they -- but we can also increase the output and then we can share the additional benefit from the customer to Heidelberg and to the -- our customer. This is the one example. And the volume has to be defined in regions by products. It's around EUR 150 million, which is under pressure, so to say, which we are trying to bundle left and right into contract.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [29]

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Any further questions here? Then we will now have the opportunity also to ask questions from the telephone lines. So operator, please ask for questions from outside the room.

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Operator [30]

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(Operator Instructions) We will take our first question from Markus Schmitt of ODDO.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [31]

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Just one on the high-yield bond. As the bond market is a bit difficult now and your outlook being cautious, is it likely that you will push out the refinancing of the corporate bond rather into the calendar year 2020? Or would you opt to refinance the bond with borrowings under your RCF, if the documentation allows this, to reduce the negative carry? Maybe you can share your thoughts here and what are triggers for either way.

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [32]

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Yes. Thanks on your interest on that one. As I've tried to explain here on room, on Page #12, there's no major maturity in '19, there's no major maturity in '20, nothing in '21. So it's 3 years down the road before we have to bring a solution for the one or the other way. We do have excess cash on hand with more than EUR 100 million, and we do have credit lines committed of EUR 700 million and the gross amount, which we do have, EUR 450 million. So if I make the mathematics in the right way, we have more than EUR 200 million that we can draw left and right. In this regard, we have sufficient -- plenty of time to find the right and the best solution.

If we go backwards, we have seen that we normally have had always 1 year in advance at latest financing solution. You can be assured that we, in the next 2 years, will also find a good opportunity to refinance the minor part of the maturities, which is in there.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [33]

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Okay. But the 8% coupon is there and I think that cost you interest each year. So what is the reason to wait for this? I mean, you could, I think, with the comfortable liquidity headroom you just mentioned, I think you could reduce your negative carry or the net could improve the interest cost quite materially, but you have not done so. So what is the reason you keep it simply there?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [34]

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You offer me a fixed guaranteed coupon then we can discuss bilaterally if we're going to accept this one. So I'm happy to discuss all of us around the world if somebody's coming and giving us commitment under certain and given conditions. In this regard, we have to look into the business environment and the capital market. The last high-yield bond we have had done was the 7 years high-yield bond with no securities, and therefore, we have paid a certain coupon. There might be a certain negative interest to be paid in there, but this might be the price at the time where we have launched the coupon. Now we just have to look what we have to do over the next couple of years. I'm just going to give you confidence that there are credit lines committed where we can left, right, back and forth.

And if I then say 1 year earlier or less, I can say the normal coupon might be not 8%, it might be 7%, 6%, 5%, whatever you're going to take. And if you multiply this with EUR 150 million, then you have a potential disadvantage of EUR 1 million, EUR 2 million, EUR 3 million or EUR 4 million. And in comparison to EUR 2.4 billion of cost, what we do manage, this is an insurance what we do have that we have sufficient credit lines going forward and we are trying to do the best to bring down the interest cost rather sooner than later, but we don't want to be pushed somewhere and then comes a capital demand and I'm running short of EUR 20 million or EUR 30 million. This is what I have never done up to now. This is what I wouldn't recommend the company to do going forward. We should have all the opportunity to be on the safe side with the credit lines and taking the negative carry as a cost in mind, while if it comes versa as you planned, you will never get excess additional cash.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [35]

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Okay. But just a clarification. Your RCF documentation allows for refinancing the bond by drawing the RCF. That is possible, yes?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [36]

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Sorry to be that sharp. We are not disclosing the RCF notes, but you can be assured that we have been able in the position to refinance in the last couple of years where the environment was much, much, much more difficult and our banks are following us the last 15, 20 years, they know exactly about the time frame. So there is -- and I say no risk, that's the wrong assumption here and I can just say we were able to manage this in the past and we are prepared also to do this one in the next 2.5 years, which is the remaining time frame.

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Operator [37]

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(Operator Instructions) We will take our next question from Aliaksandr Halitsa of H&A.

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Aliaksandr Halitsa, Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst [38]

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I have, firstly, a technical one. On your P&L -- no, on your cash flow statement, you have EUR 60 million charge related to your other provisions. And thereof, EUR 40 million roughly is related to terminations of the leasing contract. And so one would expect to see the EUR 40 million as a positive charge on your -- to earnings on your P&L statement as you effectively recognize the future of lease liabilities. But the other operating income does not show any kind of abnormal fluctuations here. Could you just explain how to look at it?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [39]

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The one which you might have read is in a gross amount. There was also a net cash inflow in comparison with this ending of these lease contracts. I'm not going into the details. I can just say -- make a summary, there was no major impact on the P&L statement. However, this was reserves through provisions and there was not a release of provisions in the amount, which you are expecting from.

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Aliaksandr Halitsa, Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst [40]

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Okay. And then another question on your build-to-hold arrangements with customers. I was just wondering if you had also similar arrangements in the past and if you could elaborate on the exposure. And in general, why would a customer want to have -- or would want to request such an arrangement, yes?

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [41]

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Unfortunately, I didn't get your question.

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Aliaksandr Halitsa, Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst [42]

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I'm referring to the...

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [43]

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The line is not that good. Maybe you can come a little bit closer to the mic.

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Aliaksandr Halitsa, Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst [44]

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I'm sorry. Can you hear me now?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [45]

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Yes, please.

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Aliaksandr Halitsa, Hauck & Aufhäuser Privatbankiers AG, Research Division - Equity Analyst [46]

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I was referring to the build-and-hold arrangements. I was wondering whether you had similar arrangements in the past and if you could kind of add some flavor with regards to your exposure to customers with whom you have entered, yes, these arrangements. And why, in general, the customer would want to have the machine basically supplied on all kind of builds on this -- under this arrangement?

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [47]

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I would now guess where your question is going and which direction. I would propose that Robin Karpp or myself will give you a call later on to discuss this then bilaterally.

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Operator [48]

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We have not received any further questions over the audio. I will now hand back to our host for any additional or closing remarks.

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Dirk Kaliebe, Heidelberger Druckmaschinen Aktiengesellschaft - Deputy Chairman of Management Board, CFO & Head of the Financial Services Segment [49]

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Yes. Gentlemen, as we have received in the room concerning liquidity, a lot of questions, concerning net working capital all the things around, afterwards also question about financial the framework, please be assured that not only myself running -- or having run the business since the couple of years, I wouldn't love to say centuries, we, as a management team, takes this very serious. We know what we have to do to come into the right position and there was only one I may bring over, that we have all the elements available that we can optimize the capital structure also going forward. So it is being seen the maturities, we know what to do, but we have cash on hand, we can optimize less than there. So I don't want to make there any feelings or don't want to give any feelings that is not being taken serious from the financial part of the organization. And if there are further questions, I'm happy to answer them also with Robin afterwards. Thanks.

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Rainer Hundsdörfer, Heidelberger Druckmaschinen Aktiengesellschaft - Chairman of Management Board, CEO & Chief HR Officer [50]

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Now ladies and gentlemen, thank you very much in your interest in Heidelberg. Even it's, of course, a challenge, I think Heidelberg overall is on a very good way. It's a long-term approach. I said that already 2 years ago. This is nothing to be done in a year or 2, but it will create a lot more profitable and a lot more stable business in the future. Thank you for your interest.