Heidelberger Druckmaschinen Aktiengesellschaft (HDD) Earnings Call Transcript & Summary

Thank you. Good morning, ladies and gentlemen. Our CFO, Marcus Wassenberg, and I would like to warmly welcome you to this webcast. I'm delighted that you have taken the time to participate during the current difficult circumstances. Today, we intend to present the action package for Heidelberg's realignment and explain the measures in final detail. Yesterday, we agreed on an extensive change that will improve Heidelberg's resilience even and especially in turbulent times and secure our leading market position and profitability over the long term. The current crisis that overshadows all others in terms its rapid evolution presents additional challenges that will be impossible to overcome with the agreed measures. This cannot be emphasized enough. So today, we'll have a liberating effect for Heidelberg, our employees, our customers and not least for our shareholders. The action package has 3 pillars, 3 central pillars. First, we will stabilize Heidelberg by almost completely eliminating our net debt. Second, we will consistently focus on our profitable core business, with loss-making products discontinued. And third, our highest priority is now to systematically implement the action package with the clear objective of securing and increasing Heidelberg's long-term profitability. We will explain these 3 pillars in more detail. Before we look at the measures, I'd like to say a few words about Heidelberg's current situation and the impact of corona crisis on our business. We face the major task of steering our operations through a crisis of unprecendent (sic) [ unprecedented ] proportions. Our main priority is safeguarding the health of our employees worldwide while serving our customers as best as we can. It is clear that the global corona pandemic will disrupt the economic environment to an even greater degree as well as have considerable impact in the current fiscal year through the beginning -- into the beginning of the next year. This will not only affect us but the entire market, resulting in the full year sales falling well short of the prior year level of some EUR 2.49 billion. The biggest challenge will be the all-embracing uncertainty both on the sales side and with regards to assuring the supply chain. We are implementing a plan that will enable us to protect our employees and maintain operations under the increasingly difficult conditions. At the same time, we are in constant close dialogue with our customers about the further course of action. This, of course, also applies to our suppliers in order to maintain supply chains. We will -- constantly, we will, if necessary, consequently shut down all not needed capacities if they're not used to minimize the cost effects. The agreed financial restructuring measures, particularly the significant debt reduction, will prepare the ground for what we hope will be a onetime challenge. At the same time, a smaller number of business areas have for many years had substantial negative impact on the company's overall profitability despite representing just a small proportion of sales. In addition, market demand for new developments remain well below expectations. Specifically, I'm referring to the digital packaging printing business with the Primefire digital printer and the large-format printer business. These 2 product areas reduce our net profit by around EUR 50 million every year, EUR 50 million every year. In addition, the group's cost structures are not efficient enough. In addition to inadequate performance in the operating business, we have to conclude that the management structure has not yet been adapted to the size of the company, and we therefore have inefficient decision-making structures. Finally, the number of staff in supporting activities is simply too large. Moreover, the performance enhancement programs introduced in the past have not brought the required improvements and sales growth has not reached the projected level. Looking at this overall performance, one thing is clear: we need to act now. So in preparing the necessary decisions, nothing was off the table. We left no stone unturned, even putting products already at an advanced development stage under the magnifier glass. Heidelberg has strong foundation for its operational realignment: our healthy, profitable core business, which represents more than 2/3 of our sales. We will be increasing our focus on our strong core business by networking machines, consumer goods and services even more closely with innovative software solutions. And we'll be consistently harnessing our resources for these innovations. We are also building on our strong global brand and our first-grade technological expertise, particularly in the area of digitalization to create value for our customers. Our goal is to secure and strengthen our technology leadership through a clear digitalization [ of centers ]. Ultimately, this will also sustainably improve Heidelberg's profitability and financial robustness. We will achieve this in 3 main ways: first, by significantly improving our financial stability and improve our liquidity; second, by focusing on our core business and establish a competitive cost structure; and third, by systematically implementing the agreed measures. We plan to take advantage of the action package we are presenting today to improve EBITDA by a total of EUR 100 million, excluding restructuring expenses. To explain the details, I will now hand over to my CEO (sic) [ CFO ], Marcus Wassenberg. Please, Marcus.

Thanks, Rainer. When we first spoke in November and I was basically very new to the company, I pointed out that our business was fairly stable when it came to revenue, but basically, our operating profitability and our liquidity situation was wholly unsatisfactory. Rainer just explained the reason for that. And we told you repeatedly that decisive action was needed and implied that deep cuts would necessarily follow. Obviously, we have taken sufficient time to define those measures that will restore our company to healthy profitability. When it comes to liquidity, it was crucial that we first eliminate our net financial debt almost entirely. In the next months, we will repay the majority of our debt by fully repurchasing the high-yield bond and partial repayment of other liabilities. This will substantially reduce our exposure to the risk of economic fluctuations and negative market movements. Our improved financial autonomy will enhance our resilience and ability to act. Now let's take a closer look at the financial -- at the financing situation. One of the trickiest aspects was the financing of what are sometimes considerable expenses that we still need to cover. Together with Heidelberg Pension-Trust, which was founded 2005, we've paved the way for Heidelberg's realignment. Return transfer of EUR 375 million in liquidity reserves from trust funds to the company will enable us to significantly increase Heidelberg's liquidity from its own funds and thus underpin our financial stability. Historically, the reason for setting the trust up at that time was we decided to remove excess cash from the company's balance sheet. By reducing the cash position, the intention was to mitigate what at that time was a significant risk of a hostile takeover. Today, these funds will ensure Heidelberg is fit for the future and resilient to external circumstances. We are particularly gratified that this measure was widely approved by the pension trust board, its members, the employee representatives, the trade unions and our banks. Let me clearly emphasize to you that the company's pension benefits naturally remain fully assured. Existing and future entitlements to company pensions remain unchanged. If this were not the case, the measures would never have been approved. The trust fund has merely been reduced to the level required to cover claims over and above the statutory provisions. The pension trust assets are adequate for this purpose. Little has changed with regard to the funding of current pension payments. Up to now, income from security investments was used for these payments. In the future, the reduction in financial debt will lead to equivalent interest savings and thus allow us to make pension payments without additionally impacting cash flow. We have already mentioned financial autonomy today, and the liberating effect is real. The fresh funds will enable Heidelberg to almost completely eliminate its net debt. We will be free of the burden of indebtedness. High level of interest will not longer bring us down from operating profit. Significantly, we will have the financial scope we need for realignment. Substantial effect of which will again be evident in our income statement and balance sheet for the current financial year. The anticipated EUR 300 million impact on net profit and the current unfavorable development of interest rate used to determine pensions provision will result in a sharp reduction of group equity. We will counter this through accounting measures, but we must assume that the equity ratio will only be in the mid-single-digit range as of March 31, 2020. Obviously, this is not good. But thanks to a much smaller debt burden, it does not put access to debt risk either. At the end of December, equity amounted to just over EUR 300 million, meaning that it will be almost completely eroded by the projected impact. We therefore intend to release a valuation reserve for fixed assets, which will increase the equity by more than EUR 150 million. Based on our improved profitability following implementation of the action package, we foresee a continuous improvement over the coming years. Going forward, it's crucial that we focus on our strengths. The room for maneuver we gain will be required to further bolster already profitable core business. Our approach on the path ahead will be different from the past. It will be more consistent and in some cases more uncompromising. If we look at the expected market developments in our core business areas, it's clear that the global printing volume will remain relatively unchanged at more than EUR 400 billion. Within the industry, industrial printing companies account for the bulk of the growth, particularly in the area of packaging printing. For customers, increasing productivity within the overall production system offers the greatest profit potential. Heidelberg is superbly and uniquely positioned, thanks to its completely complementary product range. Our subscription model, for example, enables our customers to harness dormant productivity potential of their processes. We intend to further expand this business model going forward. Our future focus will enhance our technology leadership in all those areas, with an emphasis of process digitalization. Heidelberg's realignment also involves the systematic discontinuation of unprofitable operations. In digital packaging printing, for example, the market of the Primefire 106 product has grown much more slowly than anticipated because of the difficult industrial market environment. Industrial digital printing is not yet cost competitive and the technology is far from being fully developed. Since the market is still developing, it is very small. Due to tight financial resources, it's not possible for us to bring small numbers of this product to market over an extended period. Similarly, in sheetfed offset printing, the large-format product range has been failing well short of sales targets due to the fundamental change in the market structure for the [ subsector ]. In recent years, it has become apparent that the smart segment is extremely price sensitive and of a manageable size. Unfortunately, given the revenue that can be earned from such product, it's no longer economically valuable to retain them in the long run. Forthcoming investments and their further evaluation will additionally impact earnings and tie up resources that we can deploy more profitably as well. It was a painful decision for us, but this decision will ensure that we maintain the installed base providing the same service quality. We can no longer absorb the substantial losses in the digital printing and large-format printing business. We have therefore taken the decision to not continue these 2 business areas. Discontinuing the production of these unprofitable products will avoid annual losses of around EUR 50 million. However, the separation of our unprofitable business is merely a step along the way to profitability. To prevent losses over the long run, our realignment will also involve sustainably streamlining our production and structural costs. This has not happened enough in the past. We must take resolute and painful measures on all levels and in all areas. Up to 2,000 jobs will be affected globally. We estimate that approximately 1/3 of these will be handled through existing programs such as partial retirement. Together with the works council, we will consider different instruments such as early retirement solutions or voluntary programs. Shutting down individual plants may become necessary. We will soon start negotiating with the workers' council, as everyone involved is eager to resolve things quickly. We will work closely with the workers' council and IG Metall union to ensure that the upcoming changes are dealt with in the most socially responsible manner possible for the employees' concerned. The expenses of these changes are estimated to total about EUR 300 million in financial year '19/'20, depending on the outcome of negotiations with the employee representatives. We expect the operational result to increase by EUR 50 million, thanks to the elimination of losses, and by a further EUR 50 million through structural cost reductions. This should be accompanied by a EUR 100 million improvement in EBITDA to above EUR 250 million. We have learned from experience of the last years. We will do things differently this time. Hoping for the best will no longer be the approach followed by Heidelberg. That is why this realignment will be different and successful. For us, it's clear our top priority is earnings quality and increased profitability. This is our focus in all measures we've systematically implemented to achieve it. In order to introduce and implement the transformation program as quickly as possible, we have set up a professional project management office, which will also draw on external advice to manage and supervise its systematic implementation. The implementation of the transformation program will be closely checked by a steering committee. This committee will also ensure that the funds transferred back from the Heidelberg Pension-Trust are used exclusively for the agreed purpose. Up to 4 Supervisory Board representatives, including 2 representatives from the employee side and 2 -- and from the trust, will sit in the Steering Committee. This too clearly demonstrates that a focus on implementation commitment and close involvement of all stakeholders is paramount. I'll hand it now over back to you, Rainer.

Thank you, Marcus. Let's turn our attention to the future. Where will Heidelberg be in 18 to 24 months' time following its systematic realignment? Looking ahead, we will guide Heidelberg towards profitability than rather sales growth. Our priority will be to sustainably increase profitability, thereby ensuring Heidelberg's financial resilience. Hoping for the best does not work, as Marcus said. It will no longer be our approach. Our sole focus will be profitability. Due to the implementation of the measures, financial year 2020/'21 will be still a traditional year for Heidelberg, but the focus on profitability will start to bear fruit starting from '21/'22. With our innovative solutions and products, we will reach a new stage in print shop digitalization and thus considerably enhance our customers' efficiency and productivity. Specifically, this means we will network machines, consumer goods services even more closely with innovative software solutions. We will consistently harness our resources for these innovations. With these prerequisites in place, Heidelberg will continue to fulfill its role as technology leader and strong partner for the printing industry. Ladies and gentlemen, I would like to close with a quick summary. I'm firmly convinced that the measures announced today will be successful. By comprehensively strengthening our financial stability, we will prepare the ground for Heidelberg's realignment and ensure that our company is weatherproof. At the same time, focusing on our profitable core business will get Heidelberg back on track for success. The management's full attention is now on the systematic implementation of the announced program, which will permit Heidelberg to further consolidate its role as global market and technology leader. Heidelberg is and will remain a strong partner to the printing industry worldwide. This goes without saying for each and every one of our employees, and it is precisely this position we intend to maintain for the benefit of all our customers. Many thanks for listening. We will now be pleased to answer any questions you may have.

We will now take our first question from Richard Phelan.

Just one question with multiple parts. Can you discuss if there is any sort of transaction risk with the transfer of the pension reserves occurring? And related to that, you mentioned earlier in the call that the bond redemption will take place in the next months. So I guess a little bit more detail about the process here in terms of this transfer occurring would be helpful. And I guess also sorry, related: Is it your intention to put a new revolver in place as well with the bank group?

So first of all, with respect to timing, we assume that the transfer -- or no. We are sure that the transfer of funds will happen within this financial year. And then additionally, if there -- you asked whether there was a risk. I would say there is no risk unless and until we [ move ] the fund in the agreed upon way, which is basically reduction of debt and financing of transformation. With respect to the revolver, the idea is basically to lower the debt, and therefore, we pay part of the revolver. There is no intention to sort of replace the revolver right now. I hope that answers your question?

Yes. That's great.

We will now take our next question from Eggert Kuls.

I have a question regarding the EUR 375 million you get from your pension trust. So who is belonging the money? So it seems it's not Heidelberg's money. It's the pension trust's money. Is that right?

Technically, you're right. It is what in Germany you call [Foreign Language], which is basically something that is within a trust. But when it comes to balance sheet, it's something you use to sort of balance off the pension debt, which is basically the effect that we had on our [ balance sheet ]. When it comes to -- technically, we are taxed on that as well, yes.

So assuming -- or you said you'll receive some money, okay. So this is a precondition for all that restructuring...

Yes.

Yes. So afterwards or in a couple of years, you have to pay back this EUR 375 million, or is that then forever the money of Heidelberg?

There is no -- no. We don't have to pay back the money unless and until, again, we use it in the upon agreed way. And we have no intention to use it otherwise, so there is no repayment that we have to do.

Okay. So how I have to book that? So you'll get the money from the pension trust, then you have EUR 375 million more liquidity. What is on the liability side? So it's not equity. So it's -- if it's not equity, it's liabilities.

So basically, what happens is you basically increase your cash position. And on the other hand, since you in previous times sort of balanced off your provision debt, your provision debt will arrive in the equivalent amount. But then we use the debt and we use the cash position to clear off other debt, which will then improve the balance sheet.

So meaning that the pension...

Depending on interest. Sorry.

So the pension debt will increase by the EUR 375 million or something like that?

Yes, yes, yes.

Okay. Okay. So then understood that. So yes, for me, it's a little bit strange or rather strange that -- because it seems that Heidelberg had hidden reserves outside of the balance sheet. Nobody knew about that. And yes, currently, it's 2x or more than 2x the current market cap of the company, so it makes it really strange to make a valuation for the share because -- yes, okay. Maybe you can answer that first.

Well, again, I think if you read carefully through the annual report, there is obviously a statement concerning this. What is -- and I agree on that, in your statement. What is particular about our situation is that, as normally -- that a CTA, which is basically the basis for what's happening here, you cannot open. Wisely enough, the CTA was drafted in a way that it can be open. And when I joined -- or when I took office, I promised to you and I promised to the company that I would turn every stone. And therefore, I found some experts who basically dealt with the situation and could demonstrate that this was possible for us to open the funds and therefore transfer them back.

Yes. Yes. Of course, I understand that. So I think Heidelberg can be happy to have such a reserve in such difficult times, while I would have wished that all these measures would have been undertaken already some years ago, but okay, when you were not on board, and it was the decision of the old management. Maybe last question, regarding the equity ratio. You mentioned it's in the mid-single-digit range by the end of March, so end of the fiscal year. And you also said that there will be a revaluation of fixed assets of more than EUR 150 million. I think this then will only happen in the next financial year. Is that true?

No. It will happen this year, basically, because the intention is obviously to load everything when it comes to provision into this year and therefore a need to balance the equity. Therefore, we need to revaluate fixed assets according to IAS 16. And there is obviously some hope. And you can see it right now in the interest rates tables that, hopefully, the interest rate for the pensions is climbing and remains on the upper level. Therefore, obviously, hopefully, our equity ratio will actually be slightly better than the single-digit ratio that I just mentioned, but this has to be seen. I'm sure about [ that ].

Okay. Okay. So this is already included, okay. The more than EUR 150 million, is that, yes, probably it's real estate. Or do you have other fixed assets which you can revaluate?

We will concentrate on ground and property. That's more easy for obvious reasons. And it won't have a counterbalancing effect on write-offs and so on, yes.

Okay. Okay. And maybe a very last question, on the risk development of order intake in the light of the corona crisis. Have you seen a significant downturn? Or what is your impression currently?

We see a significant downturn, in particular, North America and Europe. China is already improving slowly but surely. Also our factory in China is operating almost to 100% again. So China as well as Asia is coming back, and it looks promising that we are through the worst. What is going to happen in Europe and North America? It's hard to say. We will react with short-term work. We will shut down probably the factory in a week or 2 in order to save costs until the order entries will recover. So we are already putting together the measures to counter this situation in front of us and we'll adapt the capacities and costs accordingly as quick as we can.

[Operator Instructions] We will now take our next question from Malte Schulz from Commerzbank.

A couple of questions. I was still wondering. I mean on the discount rate I would rather just check it again. I mean it's rather going down over the last months. And I mean with interest rates now going really, really down due to the corona crisis, I would expect it rather to increase. And let's stay a little bit more on the cash side, probably the more pressing one. I mean you get now the EUR 375 million of liquidity in. But let's say, I mean this financial year will be a little bit less favorable, so it will be also let's assume you have EUR 50 million less cash flows than planned. The corona crisis will probably eat also at least EUR 50 million to EUR 100 million. Just can you give an idea how much liquidity or liquidity reserves do you have left? How many undrawn credit lines do you have? And do you intend to repay the high yield only after the corona crisis is finished? And also how we should look at the cash costs of this restructuring program and especially the timing of the restructuring program?

Well, I will not sort of engage in a down -- in a doom scenario. So I -- maybe when it comes to high yield, we will repurchase the high yield within the course of this calendar year. That is one. Secondly, when it comes to the liquidity situation, as I said, our net debt is basically nonexisting anymore, which basically means that we have a lot of room to maneuver now. And the structural expenses will be covered by the trust funds that I mentioned. So basically, I think we have enough headroom to maneuver. And obviously, nobody knows how corona will affect the businesses. I think that is something that we're all dealing with right now. There's a lot and a great deal amount of uncertainty, but I think we're actually good positioned to deal with that. And as Rainer said, we're taking some measures here as well.

Yes. We are already underway to take all the necessary measures to adapt capacities to the remaining demand. And the short work, to a certain extent, to 100%, it's doable. It is already supported by the government, so we are very certain that we will manage the situation. And that has, of course, also a significant effect on the cash flow.

Yes. Okay. Can you quantify the Q1 savings maybe on -- or cost reductions you have already targeted with short-term labor? Just to give us an idea.

No. We don't know yet what the sales side will be, so it's rather difficult to predict that. But we can react on very short notice, basically on a daily basis. Does that answer your question?

Yes. It's already kind of helpful. I think it's just on a kind of which kind of cost base you would say you're anyhow fixed to flexible, just to give us a rough idea. I mean if you are shutdown now like, let's say, for a month or so how we should look at it? If you have an idea.

It depends. We're not shutdown completely. So our factory in China, for instance, is running at 100%. We're producing, selling, shipping machines. And of course, we also therefore need to produce parts and components here in Germany and ship to our China factory. So it is quite a challenge to tell you. The saving, to give you an idea, the saving we can achieve with 1 day short work is around about EUR 1 million per day. I'm giving -- if you want to have a rough idea.

Yes, yes. That's helpful.

We will now take our first -- next question from Peter Rothenaicher from Baader.

Firstly, one question regarding the sales impact of cancellations of the products, the digital product and the large format. How big is this effect?

Around about EUR 50 million...

EUR 50 million to...

Yes. Around about EUR 50 million.

A year?

A year, yes.

Yes. Then also regarding the transfer of the pension. So we have seen -- I know you had transferred it in the -- many, many years ago where the interest environment was totally different. So if you put them now on the balance sheet, is it really true that pension provisions for this amount will only be in the magnitude of the EUR 375 million?

First of all, yes. I mean it's obviously covered by an opinion, a qualified opinion. Therefore, we know what we're talking about. So yes.

Okay. Then you mentioned that the year 2021 will be also a transitional year. You go into the year likely with a weak order backlog, so there is clearly the risk of significant losses. You mentioned your equity ratio at the end of this year will only be mid-single digits. So if you have further significant losses, isn't there the risk that your equity ratio might fall then to 0 or even below 0?

We will have significant losses this financial year because of the provisions to cover up the transformation program. We're not expecting significant losses next year because basically we will see that the performance improvement measures will sort of kick in. They will obviously take some time to fully materialized. This is why we anticipate like an 18- to 24-month period to fully, let's say, restore profitability in a sufficient magnitude to our P&L, and hence, balance sheet. We don't think right now that the corona affects the sort of still all year's profitability next year. This is not what we anticipate. But obviously, nobody knows, and then we have to deal with that. But I think, given the situation the company in, we are much more -- we are much better positioned now with the transformation program than we were before. And sort of I think what for us is key is that we are very fast in determining and implementing those measures and basically reduce our structural costs.

Okay. How did you progress with externalization of the financing of the subscription machines?

It's a negotiation that I cannot sort of fully disclose. But I think with the measures that we just introduced to the market, we're able to sort of demonstrate that the company we're partnering with, and I hope that we can sort of move ahead and close this negotiation within the next weeks or months, depending on obviously what's going on in the marketplace right now.

Is this externalization already part of your expectations of this mid-single-digit equity ratio?

It's not in our plan as of now. So that's something what will be an add on. But obviously, it's right -- I mean it's in our strategy that we don't have subscription on balance sheet, as you well know.

Okay. And then could you give us further information about the cost effect of this pension structure? So you now have tools to finance these additional pensions. Is this amount really equal to the interest savings you currently have? Do you book these pension costs then also in the interest result? So is it not part of EBITDA?

First of all, yes, it's a wash, and it will remain a wash for the next year. Secondly, no, we're not showing this in the financial result, but we're -- it's in the financial result. Sorry. I was wrong. So yes, it's in the financial result.

We will take our next question from Andreas Jaufer from Robus Capital.

Could you just please elaborate exactly what you mean when you say you want to repurchase the high-yield bond? If you want to repurchase them, obviously, that means people have to sell them to you. If you want to get rid of it altogether, you'd have to call the bonds which are callable at [ 1 0 2 ] from 17th of April onwards. And then could you also clarify again the timing of that? You said during the presentation you'd repurchase within the month. You just now said you would do that within the calendar year. It'd be great to get some clarity on what the timing looks like. It will be my first question.

So I think -- yes. To be more clear, we will decide within the next weeks how to sort of repurchase the high-yield bond within this calendar year. That's what I meant. Sorry if I was not clear enough.

And you're using the word repurchase again, but is that redeeming, i.e., paying back and calling the bonds? Or are you just going out there with a tender offer and whoever sells the bonds back to you gets rid of them? But whoever doesn't want to sell will remain a bondholder. So that's [ not clear, I guess ].

Not yet decided. Yes, not yet decided.

All right. But there is no ultimate end goal to just basically pay the bonds back? Because that's what you also said. So if no one sells the bonds to you, if you want to repurchase them, what are you going to do?

I'm not sure that that is a realistic...

Scenario.

Scenario. So I think that this will be possible within this calendar year.

Okay. And then in terms of the RCFs, I think there's a minimum liquidity covenant of EUR 80 million. And there is also one more covenant which seems to refer to the equity ratio. Can you elaborate what that covenant is?

Sorry. I'm not at the liberty to disclose that.

But can you make a statement as to the effect that all these accounting changes will have, including the negative impacts on the equity, as of financial year-end '19/'20, that that will not provide any drawstop or problems under the covenants for your RCFs?

This is why it was so important for us to have the fully backing of our banks, which we have to 100%. We introduced the financing concept to them and they completely support us.

Yes.

Okay. So the banks have essentially waived that covenant or provide you with enough comfort that you can go through that period.

Yes.

Okay. And then on the operating effectiveness, I think a gentleman before me asked the question on the sales impact of getting rid of the loss-making units. And you said it's EUR 50 million, but I thought EUR 50 million was the EBITDA impact. Could you just specify again what the sales impact was?

The large-format represents about EUR 50 million in sales. Okay. It's quite a good deal. I'd say EUR 50 million -- or EUR 50 million in top line.

Yes. It's one of the very rare situations where basically it just equals, and this is why it was so important to do that.

Okay. Well, fine. And then lastly, the amount of your subscription activities that you currently have in the business, what's the order of magnitude that we are talking about in terms of finding a financing partner for that?

No. The turnover we're making already is EUR 30 million, and of course, it's growing exponential as we add more contracts. So this is well underway. And as soon as we are able to externalize and push harder, it will grow faster.

We will take our next question from Sebastian Kaufmann from Tresidor.

Yes. Thanks, guys. Actually, my -- all my questions have been answered. Thank you very much.

We will take our next question from Markus Schmitt from ODDO.

There is just 2 left for me. First one is again on the pension thing and the transfer of assets. So I assume you double and triple checked it with your lawyers that this is all according to any law or regulation, I would guess. So there is no risks that a pension under the trust could come to the trustee or to Heidel Druck and use them for transferring funds out of its pocket basically. This is all has been checked, I guess.

Absolutely. So we have the leading experts in Germany who advised actually the government to qualify that and give us an opinion.

Okay. And is there any excess liquidity left in this fund or has been all transferred what was there?

No. There is sufficient liquidity left in the funds to cover the other pensions that basically are not covered by the [indiscernible] fine.

Okay. And but what I mean is there is no excess liquidity left which you could take out later on again. That is not an option, I guess, okay.

No, no, no. That is not an option because that is necessary to cover and protect the entitlements that are not covered by the [indiscernible] fine.

Okay. And the final question, just quickly. There's many talks that some companies in Germany will opt for state aid due to the coronavirus. Is that on the agenda for you as well? Or are your liquidity plans, including the transfer of the pension assets, sufficient that you will not need to ask for state aid or government or regional government support?

The funds that we -- that the pension funds will transfer to us are meant to sort of reduce debt, and on the other hand, cover the structural expenses in the transformation. With that, we have sufficient headroom to maneuver, we think, unless and until obviously the crisis is much bigger than anticipated, which at this point in time we cannot foresee. So therefore, we have no intentions to further do otherwise than we just laid out.

We will now take our next question from Werner Friedmann from Asandis.

Thank you, gentlemen. My questions have been answered.

Thank you.

We will now take our next question from Stefan Augustin from Pareto Securities.

Yes. Just some small left. If you continued to stay in the Labelfire business and also produce and sell the consumables for the Labelfire. That is the first question. And can you tap on somehow on the consumable business of the Primefires that are so far installed in the field, or will this business be lost in the future?

It is small, but we will try to keep it. And we will try to keep, of course, the knowledge in-house, but the top line already so far for Primefire is very, very small, so it has basically no impact.

Okay. And on the restructuring costs and with the cash flow, I think you will need to write down capitalized R&D for the very large format, if there is still one left, and for the Primefire. Is there a number you could share with us?

It should be -- it is a mid-size 2-digits million amount, I would say, if that's sufficient for you. So...

Rather high.

Yes. Rather high middle, 2 digits. Say it's around about EUR 70 million to EUR 80 million, to give you a number for that.

All right. So the EUR 70 million to EUR 80 million would not be cash costs on the EUR 300 million restructuring. Is that the right thinking?

Yes. That's right. And then some inventory as well that we have to sort of write off.

This will be actually the next question. How much working capital can you set free by closing these 2 businesses?

Around about EUR 40 million. And I mean the other thing that is basically to be considered is those machines are very complex to build. Technologically, they're really, really state of the art. The issue is that, obviously, by discontinuing them, we sort of reduce lead times in general and hence improve our net working capital. So it's not only an inventory view but basically even a process view that we have to take.

All right. And would there be a possibility to actually, let's say, even without getting a partner on board, accelerate the subscription business? No?

And of course, the focus because subscription -- of the contract business, let's say, is more than subscription, is a very -- this reoccurring business is a very nice business and very profitable. So we are pushing for that, yes.

Okay. I'll phrase it a little bit differently. We cannot -- or you could not use the pension trust's money to put it into a subscription.

No.

No, no. No, we cannot, because it's meant to repay the debt and to support the transformation.

Yes. It comes with a condition. The transfer of the funds comes with the condition to pay for the reduction of debt, and on the other hand, pay for the transformation costs.

But as Marcus said, we are very optimistic to have a solution in place in the next weeks or, latest, months.

We will take our next question from [ Markus Plummer from Mindmine Investments and Advice ].

First of all, I would express my respect for taking such a tough decision. Only one question left. Besides the positive working capital expense, what is the impact on your R&D costs? How much of your R&D is currently linked to the 2 business lines? And can you stop that immediately? Or I would expect so.

So this effect will be around about EUR 30 million. Can we stop this completely right now? Not yet, but it will not take so long. Maybe 1 year, something like that.

We will take our next question from Malte Schulz from Commerzbank.

A little bit maybe looking forward. I mean Primefire was one of your growth stories. Just how we should look at your kind of midterm targets or so? And also related to it, how much of your subscription revenue is linked to machines you now discontinue?

Basically none. The large-format machines are sold mainly to large corporations who are not interested in subscriptions, and Primefire isn't a subscription machine at all, so no impact.

And on loan growth, do you have any comment? I mean how we should look at your midterm targets now without these products?

Stable. For the next 3 years, I think we'll be stable. I mean again, we need to sort of evaluate what's happening with the coronavirus. But right now, we would anticipate to be stable in the next 3 years and then grow around about by 2%, I guess.

I mean with -- as soon as the subscription and contract business picks up, the growth will also pick up. It's hard to say in the current situation with the overall economic situation. Good.

As there seem to be no further question in the line, I will just hand back to Rainer Hundsdörfer for closing remarks.

So ladies and gentlemen, this was a very -- these have been very tough decisions for us here at Heidelberg, but we are certain that it was the right thing and is the right thing to do. We got the financial room to do it, and we'll consequently put all these measures in place in the next weeks to come. Thank you for your attention, and stay healthy.