Annual Report 2020/2021 Pers Pectives To our investors Our strategy Our Objective i mPrOve PrOfitability i ncrease strengthen enterPrise cOre business value DevelOP new grOwth for our areas shareholders CT oN eN s Two-year overview CONTENTS Pers Pectives in packaging printing in china in digital business models in new markets Our PersPectives f oCus oN paCkagiNg priNTiNg: Market and technology leadership along the entire value chain in the folding box and label segment l everage MarkeT poTeNTial iN ChiNa: above-average participation in market growth and expansion of production Acc eleraTe digiTalizaTioN: f urther expansion of contract business, digital platforms and software range Tra Nsfer TeChNology: successful transition from printing presses to additional industries section Financial Finanzteil go to To our investors Two-yAR E ovERvIEw – HEIDElBERg gRoup Figures in € millions 2019 / 2020 2020 / 2021 Incoming orders 2,362 2,000 Net sales 2,349 1,913 EBITDA 1) 102 146 in percent of sales 4.3 7.6 Result of operating activities excluding restructuring result 6 69 Net result after taxes – 343 – 43 in percent of sales – 14.6 – 2.2 Research and development costs 126 87 Investments 110 78 Equity 202 109 Net debt 2) 43 67 Free cash flow 225 3) 40 Earnings per share in € – 1.13 – 0.14 Number of employees at financial year-end 4) 11,316 10,212 1) Result of operating activities before interest and taxes and before depreciation and amortization, excluding restructuring result 2) Net total of financial liabilities and cash and cash equivalents and short-term securities 3) Including inflow from trust assets of around € 324 million 4) Number of employees excluding trainees In individual cases, rounding may result in discrepancies concerning the totals and percentages contained in this Annual Report. C oNTENTS To our invesTors Finana Ci L seCTion 2 Letter from the Management Board 73 Consolidated financial tatementss 14 Heidelberg on the Capital Markets 153 Responsibility statement 154 Independent auditor’s report CoB M ineD 161 Further information ManaGeMenT reporT 18 Basic information on the Group s upervisory BoarD anD CorporaTe GovernanCe 34 Economic report 50 Risks and opportunities 170 Report of the supervisory Board 60 Outlook 177 Corporate Governance Declaration, 63 Legal Disclosures Corporate Governance report (as of June 2021) 186 Compliance 189 Five-year overview – Heidelberg Group CT oN eN s Two-year overview For ease of reading, gender-specific language has not been applied in this report. Where personal terms are only used in the masculine form, they are representative of all genders. To our investors Heidelberg offers perspectives. letter from the management board We will undoubtedly all continue to associate the financial year 2020 / 2021 with the severe impact of the C oviD-19 pandemic on public and private life and the world economy for a long time to come. it was also a year of huge challenges for Heidelberg as we faced the biggest recession for many decades. our primarily focus was on ensuring the health and safety of our more than 10,000 employees. We succeeded in implementing stringent hygiene standards at all of our locations in a short space of time, allowing us to remain operational despite all of the restrictions. all of our Company’s employees deserve our considerable gratitude for achieving this, and for the commitment and flexibility they have demonstrated in the face of challenging working situations. We began the financial year with an extensive restructuring and transformation program that we had already defined prior to the pandemic. The slump in demand resulting from the pandemic required us to intensify this program during the course of the year. and our efforts have paid off. Today, we can say with some pride that Heidelberg stands on stable foundations – financially, structurally, and oper- ationally. The aim of our program was to sustainably increase Heidelberg’s financial stability and profitability in order to create substantial value added for our shareholders. one year on, our message to you is clear: We deliver on our promises. We are well on the way to lowering our eBiT break-even point to below € 2 billion. We have maintained our net debt at a low level despite the dramatic impact of the pandemic. We have significantly reduced our interest burden and further streamlined our portfolio in order to improve our earnings. We have initiated and, in many cases, already implemented sustain- able savings in staff and non-staff operating costs that are set to total around € 170 million in the financial year 2022 / 2023. With this in mind, we would like to express our particular gratitude to our employee representatives for their constructive and cooperative support in shaping the transformation process. We took the correct actions at an early stage in order to remain stable during the crisis – thanks not only to short-term measures, but in particular to our transformation program, which is helping us to manage the volatile environment. SA T ble foundATionS lAid, STRATegic focuS on gRowTh poTenTiAl i n light of the dramatic crisis affecting the industry and the world economy, the huge efforts this CONTENTS involved were also extremely important as a means of cushioning the slump in sales of almost 20 percent from our own resources. 2 Pers Pectives in packaging printing in China in digital business models in new markets Today, we have laid strong and sustainable foundations for our traditional company to generate further growth in enterprise value. alongside financial stabilization, the expansion of our profitable core business is the second important pillar of our transformation. We are a long way from exhausting the opportunities offered by the market in our core business – and we will leverage this potential in a targeted manner as the global market leader. in our strong core target markets, our strategic focus is on the growth areas of packaging, the subscription and lifecycle business that is continuing to see dynamic growth, and the unique strength and competitive edge we enjoy in the areas of prinect and the accompanying software connectivity as well as in data management. We have introduced a cross- sector, centralized, open industrial platform for automated supplier and customer management based on state-of-the-art cloud technologies under the project name Zaikio. in regional terms, we consider asia and, in particular, China to offer the greatest market potential. accordingly, we will systematically expand our capacities at our site near shanghai so that we can serve the local market even more effectively, affordably and with a focus on the customer. The production joint venture with our Chinese partner Masterwork, which was given the green light for joint parts pro- duction in late 2020, has the same objective. The success of our plant in China is demonstrated by the fact that it already supplies customers in 40 countries. The export rate at our Chinese production site is almost 20 percent. Meanwhile, we are continuing to focus on our innovative strength in the form of the expansion and trans- fer of our technology expertise – something we are already putting into practice with our successful activities in the growth market of e-mobility as well as printed electronics. in particular, our Heidelberg Wallboxes – private charging solutions for electric vehicles – are currently enjoying considerable “In line with the focus on our growth potential, we believe there are realistic opportunities for us to again generate section substantial value for all of our stake- Financial holders in the future.” ri a Ner huNdsdörfer go to 3 To our investors “The aim of our program was to sustainably increase Heidelberg’s financial stability and profitability.” Mar Cus a. wasseNberg public attention and sales in this area increased fourfold compared with the previous year. With a market share of around 20 percent, Heidelberg is one of the leading providers in Germany and is now also entering other european markets. We have delivered around 45,000 charging stations in the last two years alone. in line with demand, we intend to double our capacity once again in 2021. The new financial year 2021 / 2022 will pose significant challenges for us once again. after all, an end to the pandemic is still not in sight. However, the improved order situation and the growing success of our restructuring and transformation measures give us grounds for cautious optimism. accordingly, we are forecasting slight growth in consolidated sales and a further improved eDBiT a margin. Thanks to our improved earnings strength, the non-recurring income generated in the year under review will now be largely replaced by operating income. our clear objective remains to report solid and sustainably positive earnings and a positive free cash flow in the coming years. heidelbeRg offeRS peRSpecTiveS We would like to express our deep gratitude to you, dear shareholders, for the confidence you have shown in us in these challenging times. We would also like to thank our customers, suppliers and other business partners for their close and trusting cooperation. We have stabilized Heidelberg in terms of its statement of financial position, cost base and structure; the majority of the hard work is behind us. accordingly, and in line with the aforementioned focus on our growth potential, we believe there are realistic opportunities for us to again generate substantial value for all of our stakeholders in the future. We are looking forward to sharing the rewards of our work with you. Heidelberg offers perspectives. ri a Ner huNdsdörfer MarCus a. wasseNberg CONTENTS 4 Pers Pectives in packaging printing in china in digital business models in new markets section Financial Finanzteil Raine R HundsdöRfeR MaRcus a. WassenbeRg CEO CFO Heidelberger Heidelberger Druckmaschinen AG Druckmaschinen AG go to 5 To our investors Pers Pectives in packaging printing The paCkagiNg MarkeT for foldiNg boxes is growiNg by > 2 % p.a.