Germany Goes Out of Print as Manroland Files for Insolvency
Stock Chart for Heidelberger Druckmaschinen AG (HDD)
Germany, which invented the printing industry more than 500 years ago and dominates the market to this day, has lost its talent for making money from the presses.
Manroland AG, the biggest maker of newspaper printing machines, filed for insolvency on Nov. 25, threatening the jobs of more than 6,000 workers. Heidelberger Druckmaschinen AG, the world’s largest printing-press maker, has lost more than 500 million euros ($667 million) in the last three years. After thousands of job cuts and a botched merger attempt, the onset of a second credit squeeze has hastened their decline.
Manroland’s collapse highlights the threat to manufacturers as banks curtail financing of machinery that sells mainly to small and mid-sized customers. Manroland, whose machines typically cost more than $1 million, became the country’s largest corporate failure in two years, denting Germany’s resilience to the European debt crisis.
“Normally the next investment would be this year, but due to the crisis I am afraid to do it,” said Claude Vandevelde, who owns a business printing brochure, poster and packaging business in Kruishoutem, Belgium. “Going to the bank and asking for so much money is not so easy anymore.”
In the weeks before Manroland’s insolvency filing, the company negotiated with Switzerland’s Capvis Equity Partners AG, before talks broke down amid “differing ideas” about the company’s future, Capvis Partner Daniel Flaig said yesterday.
“All solutions failed because of a lack of financial support,” deputy chairman of the supervisory board Juergen Kerner said. “Especially the owners MAN and Allianz were not prepared to provide more support,” said Kerner, who is also a member of the IG Metall labor union.
Allianz SE, Germany’s biggest insurer, is the largest shareholder in both Manroland and Heidelberger Druck. When it took a 65 percent stake in Manroland in 2006, Allianz (ALV) valued the business at 856 million euros. Heavy-truck maker MAN, which owns about 35 percent of Manroland, and Allianz agreed to put up 275 million euros of equity to finance the deal 5 1/2 years ago.
Out of Options
Annual sales at 166-year-old Manroland have fallen by more than half since then to 942 million euros last year, pushing the company to an operating loss. The company has responded by cutting its workforce by almost a fifth and putting a third of its remaining employees on shorter working hours. Manroland only manufactures in Germany.
Heidelberger Druck has suffered a similar fate. Sales fell by a third in four years, and the company posted a net loss in the last three fiscal years. The Heidelberg-based company has shifted some operations to China, opening a plant in Shanghai in 2006 to tap growing Asian demand and cut production costs.
“Manroland’s insolvency will reduce overcapacity in the market,” Frederik Bitter, an analyst at Berenberg Bank said today in a note to clients. “Manroland has been a major contributor to pricing pressure as the company sold its printing machines at significant discounts to boost capacity utilization.” Bitter rates Heidelberger Druck “hold.”
Allianz Capital Partners ran out of options to make money on the investment in Manroland. Plans for an initial public offering were dropped after markets failed to improve. In 2009, several months of negotiations over a merger with Heidelberger Druck ended without agreement.
Heidelberger Druck shares have lost most of their value since their peak on Aug. 2, 2000, at 45.66 euros and have been trading close to 1.50 euros since August. Koenig & Bauer AG, Germany’s second-largest printing press maker, has fallen 66 percent in that time. That compares with a 30 percent drop in the 92-member Prime Industrial Index of German stocks.
In contrast to printing, German machine-makers have withstood the debt crisis so far. Hans-Peter Keitel, president of Germany’s BDI industry federation, said last week a recession is unlikely as industrial companies are “robust” and their order books “well filled.” Machinery orders have returned to levels before the 2008 crisis, the VDMA trade group said.
“The printing industry didn’t recover in 2010 and 2011 like the other machine-building industries did,” said Markus Heering, head of the printing and paper industry VDMA group. “Their development was decoupled from the rest of the machine- building industry 1 1/2 years ago so you can’t draw parallels.”
Manroland filed for insolvency a day after German business confidence unexpectedly rose for the first time in five months in November. German unemployment remains near a two-decade low, supporting consumer spending and helping to offset the impact of waning demand for exports across the 17-nation euro region.
The printing industry has been in a state of shrinkage for years. Job cuts started in the last financial crisis, with Heidelberger announcing 500 reductions in July 2008, followed by a further 2,500 in October and then another 5,000 firings in March of the following year. Manroland laid off 1,000 people and closed a factory in Mainhausen in 2010.
Manroland hasn’t been able to offer full-time work for all employees at plants in the German cities of Augsburg and Plauen since March 2009. A time limit on government-subsidized shorter hours will run out next March, curtailing the company’s options to keep its workers busy. Heidelberger Druck has about half of its German employees working fewer hours.
“The industry is shrinking structurally,” said Eggert Kuls, an analyst at Warburg Research in Hamburg, who has a “hold” rating on Heidelberger Druck. “Today you read your newspaper on your smart phone. Books are being downloaded. The volume of printed material is shrinking.”
A decade ago, life the printing-machine industry looked rosy. Heidelberger Druck’s stock price reached a peak a few months after its 150th anniversary and a trade fair where it tripled its orders from the previous expo five years earlier. Membership in Germany’s benchmark DAX Index appeared within reach after German utility RWE AG (RWE) cut its stake in 2001.
That same year, Koenig & Bauer accelerated a move into niche markets such as money printing by acquiring Swiss partner De La Rue Giori SA. The purchase of tin printer Bauer & Kunzi followed in 2003. Such markets have helped the Wuerzburg-based company to remain profitable even as demand for sheet-fed and web-fed presses plummeted.
Manroland’s history dates back to 1844, some 400 years after Johannes Gutenberg invented movable type printing. The first commercial web-fed presses, used to print newspapers, were produced in Germany in 1879 and 80 years later three-quarters of all editions of German daily papers were printed on machines made in Augsburg at Manroland.
The industry struggled with the advent of digital technology. Heidelberger Druck aborted a five-year experiment in 2004 by selling its digital business to Eastman Kodak Co. (EK) after losses ballooned.
Europe’s sovereign debt crisis has accelerated the decline. The region’s banks say they have to cut assets to help satisfy a government push to boost capital faster than planned. That may trigger a credit crunch for companies and consumers in the 17- nation euro zone, helping to push its economy into recession, Citigroup Inc. and Deutsche Bank AG analysts said last month.
Vandevelde, who manages his company with his two brothers, says squirreling money away helped him through bad years. He’ll need to make a decision on a new machine within 20 months, though this time around, he can’t be certain of pulling through.
“I survived because every time I had a good year, I left my money in the company and didn’t take it with me home,” he said. “I don’t know if it will survive another three years.”
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