manroland enters insolvency

Ralf Schlozer
Nov 25, 2011

While times have been tough for offset printing equipment suppliers in recent years it still came as a surprise that manroland has filed for insolvency protection (the German equivalent of Chapter 11) on the 25th of November. The announcement came only one day after reports that negotiations with a potential investor failed.

In a statement issued on its website manroland confirmed that it had been forced to initiate insolvency proceedings following a “dramatic downturn in incoming orders” since July. The company has filed a request at the local magistrate for self-administration in order to finalise its on-going restructuring efforts as a “debtor in possession,” a court-appointed lawyer will act as general representative during the time of restructuring, while the company’s situations and options are evaluated.

While several offset press vendors have exited the market in the last decade (InfoTrends not long ago reported on the state of the offset press manufacturing industry), the insolvency of manroland gives the decline in offset press manufacturing a new dimension. To put these proceedings into perspective: the insolvency of manroland is the biggest insolvency of any kind in Germany for the last two years, despite many companies having been hit by the financial crisis. It is affecting a company, which has been in business for more than 160 years and survived two world wars and the transition from letterpress to offset. At this point in time manroland has three production sites, all with a long history in printing press manufacturing. The site in Offenbach, focussing on sheet-fed offset presses, was founded in 1871. The site in Augsburg built the first printing press in 1845 and was recently focussed on web-fed offset presses. The factory houses the site where the diesel engine was invented by Rudolf Diesel. The site in Plauen started building printing presses in 1896 and became part of manroland in 1990, in the aftermath of the re-unification. A fourth manufacturing site in Mainhausen was shut down last year in attempts to cut costs.

manroland has been a worldwide leading press manufacturer for many years. In recent years it excelled in mid- to large-format sheet-fed offset presses and in commercial and newspaper web offset presses. Vying with KBA for the title of market leader in newspaper presses manroland was especially hit by the slump in newspaper circulation and investments. manroland is also the market leader for commercial heatset web offset presses for publication markets. In sheet-fed offset presses manroland had already lost ground over the past decade and went from a runner-up to Heidelberg to third or fourth in share.

Printing press markets have had their ups and downs throughout history and manroland has been the beneficiary of some of these swings in history by acquiring some smaller press manufacturers over the decades. But fortunes for manroland went downhill in the slump that hit the printing market after the year 2000. The majority of manroland stakes were sold off in 2006 by parent company MAN (which recently became the target of a hostile takeover itself) to Allianz Capital Partners (ACP), the venture capital arm of German insurance giant Allianz.

The plan of the investors was to float manroland onto the stock market. The financial crisis dashed all hopes of that after profits in the years 2006 to 2008 turned into losses. While manroland lost €88 million in 2009, losses sank to €66 million in 2010. Results improved in the first half of 2011 with an operating loss of “only” €25 million (compared to a €46 million loss in the first half of 2010) but remained in the negative, still giving hope for some recovery. manroland acknowledged that sales and profits had dropped dramatically since July, and they were now expecting a much greater loss for the reminder of 2011 with a deficit in excess of €100 million for 2011 being deemed possible by the company.

After merger talks with Heidelberger Druckmaschinen failed in 2009, ACP provided manroland with a cash injection of €200 million. The latest drop in revenues had ACP reconsider its stance and ACP stopped providing manroland with urgently needed cash. In what seems now to have been a last minute attempt, ACP tried to sell off manroland to an unnamed potential investor. ACP had written off the investment in manroland already and it seems that negotiations failed in the final stretch when ACP was asked to cover some of the latest losses.

manroland still employs 6,500 people, down considerably from the peak around the year 2000 when it had more than 10,000 employees. About 5,000 employees work at the three manufacturing sites with the remainder in the sales and services organisations around the globe.

For the time being manroland continues to operate as normal. The board of manroland stated that it would aim to rescue key units during the on-going restructuring efforts. Additional cuts were already scheduled to take staffing to 6,000 by the end of 2012. However more cost reductions are likely to be necessary now, especially as sales of equipment will take a further hit in the aftermath of the insolvency. Printing presses are a long term investment and on-going support and supply of spares will be a concern to every potential buyer.

Still the company has a range of competitive products, a good brand name, and a sizeable on-going business in servicing its installed base of presses. The packaging printing business is still going strong and some software and services subsidies have a strong market position as well. manroland has a history in technical innovations pushing speeds and automation of presses to new heights. It created innovations in inking systems, press colour control, use of direct drive, press-room automation, and direct imaging technology, although not all have been exploited in the market.

With all the achievements and customer base it is unlikely that manroland will simply cease to exist. Essentially there are three paths out of the insolvency for manroland.

  • The company re-emerges out of bankruptcy backed by a financial investor or a similar consortium. The company would be required to slash costs and trim down the portfolio, but would continue to operate as its own entity in a similar fashion as before.
  • The business is split up and sold off in parts. This would only make sense if competitors are involved. They could then integrate sales, service, and parts of manufacturing and technology into their own portfolio to achieve synergies.
  • The business is sold to a manufacturing business in an emerging market (e.g. China), which can combine its low-cost base in manufacturing with the rich IP portfolio, manufacturing know-how, distribution network, and brand strength of manroland. manroland’s competitor Goss (now part of Shanghai Electric) is such an example, although this scenario would mean considerable job losses in Germany and more pressure for the remaining manufacturers in Germany.

Over time more details on the insolvency will emerge. Most likely it will take a while until the situation can be resolved in the case of a company the size of manroland. manroland is a large employer, especially in some regions that have been hit by above average unemployment already. It is likely that local governments will be involved in strategic decisions. While there will be a huge interest in preserving jobs some consolidation will be inevitable.

One final note: shares of fellow German offset press manufacturers Heidelberger Druckmaschinen and KBA climbed noticeably on the news that manroland was filing for insolvency and the prospect of a competitor exiting the market. However it could be a bit premature for investors to bank on big returns from market consolidation.

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