Welcome to the conference call for the publication of the second quarter of fiscal year 2026/2027. This conference call is being recorded. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Jürgen Otto.
Good morning, ladies and gentlemen, and welcome to Heidelberg's conference call on the publication of the figures for Q2 full year 2026/2027. We are delighted to welcome our investors and analysts. Besides commenting on our business performance in the second quarter, we will also cover the highlight of the period and discuss our outlook for full year 2026/2027. Afterwards, we will be happy to take your questions. Before turning to our operating performance, let me briefly introduce Christoph Burkhard, who has served as Heidelberg's Chief Financial Officer since October 1st, 2026. Christoph brings extensive financial leadership experience from listed industrial companies. Most recently, he has served as Chief Financial Officer of Wacker Neuson, having previously held the same role at Nordex and earlier leadership positions at Siemens.
At Heidelberg, his responsibilities include finance and controlling, investor relations and M&A, accounting, tax and legal, risk management, the internal control system, and information security, with further responsibilities covering finance transformation, compliance, data protection, patents, and insurance. Christoph, welcome to Heidelberg. I am very pleased that we are working together as we continue to execute our strategy and strengthen the company's financial profile. Welcome.
Thank you very much, Jürgen.
Now let's begin with the key developments in the second quarter. Following an expected soft start in the fiscal year, we saw sequential improvement in Q2. Order intake remained solid at EUR 604 million, up 9.6% year-on-year, further strengthening our order backlog to EUR 839 million. This provides us with improved net sales visibility for the second half and supports our expectation of a clear increase in net sales compared with H1. Net sales increased significantly from EUR 404 million in Q1 to EUR 509 million in Q2, demonstrating improved operating momentum. This recovery also translated into profitability, with the adjusted EBITDA margin improving significantly from 0.2% in Q1 to 6.4% in Q2. At the same time, the margin remained 180 basis points below the prior year quarter, reflecting continued cost pressure and negative product mix effects.
In addition, the macroeconomic environment, particularly in the Middle East, continued to weigh on investment behavior, while the ramp-up of projects in the Technology segment was slower than anticipated. Against this backdrop, our focus for the second half is clear: converting the increase of the order backlog into net sales, continuing the integration of the manroland sheetfed activities, and maintaining strict discipline on cash and costs. Turning to demand, we saw a clear acceleration in Q2. As illustrated in the charts, order intake reached EUR 604 million, up 9.6% year-on-year from EUR 451 million, and also above the first quarter level. This strong performance increased the book-to-bill ratio to 1.2 compared with 1.1 in the both prior year quarters presented. Order backlog consequently rose to EUR 839 million, improving net sales visibility and providing a stronger starting point for the second half.
The key takeaway is that customer demand remains robust, although the macroeconomic environment continues to create uncertainty which impacts investment behavior. Saying that, let's review the latest developments in Heidelberg's ecosystem, starting with an update of HDAT. As you know, the HD Advanced Technologies is leveraging Heidelberg's industrial engineering and technology capabilities to build attractive businesses beyond our traditional core business, Print & Packaging Equipment. In Critical Defense, testing activities in Ukraine, the industrialization program, and discussions regarding the planned joint venture with Skyeton continue to advance, while the cooperation with VINCORION remains on track. In Energy Systems, we are making tangible progress in building a new business around battery storage solutions. Following the recently signed partnerships, the first battery cabinets are expected to be assembled before year-end.
In Industry, we are sharpening our positioning on the new Manufacturing Engineering Competence Center, leveraging our manufacturing, electronics, and engineering expertise to increase customer value creation and improve profitability. In summary, HDAT demonstrates how Heidelberg can use its existing strengths as a system integrator to create focused growth platforms with attractive value creation and recurring revenue potential. Before handing over to David, let me make one thing absolutely clear. Yes, we continue to expand into adjacent growth areas, but Print & Packaging Equipment remains the core of Heidelberg and will continue to be the backbone of our business. With that, let me hand over to David for an update on our Print & Packaging Equipment activities. David, the floor is yours.
Thank you, Jürgen. Hello, everyone, and also welcome from my side. Let me start with a regional perspective. Heidelberg combines a common technology and service portfolio with capabilities tailored to the specific requirements of its local markets. Asia is a good example of how this approach translates into market access and customer proximity across various different market environments. Saying this, let me highlight three priority markets. First, in India, Gallus is expanding customer access through a tailored Labelmaster setup, regional production, and its presence at LOUPE India. This positions us to participate in a packaging market that is expected to reach around $20 billion by 2030. Second, in Japan, Heidelberg celebrates this year 100 years of market presence in 2026, underlying our long-standing presence in the market.
At the same time, the world premiere of the Speedmaster XL 106 double delivery demonstrates how we continue to bring innovation to demanding packaging applications, supporting zero-defect production, higher process reliability, and reduced material waste. Third, in China, All in Print 2026 attracted around 220,000 visitors from 141 countries and regions. Strong interest in packaging, hybrid production, automation, and lifecycle solutions resulted in order intake in the lower double-digit million euro range. Around half of it came from China. Taken together, these three markets illustrate an important strength of Heidelberg's regional setup, combining local capabilities and customer access with a common technology and service portfolio. Furthermore, let me highlight an important development in our packaging business. Asepto, the aseptic packaging division of UFlex, has commissioned two Heidelberg Boardmaster systems at its new production facility in Egypt.
The systems are part of a greenfield investment of more than $120 million. The new site is intended to serve international aseptic packaging markets and will add annual production capacity of 12 billion packs. Together with Asepto's existing operations in India, this will bring the company's combined annual capacity to 24 billion packs. The project, therefore, represents more than the sale of two systems. It strengthens our position in the growing packaging market and underlines the strategic potential of Boardmaster as part of our system offering. Accordingly, for Heidelberg, this project is an important validation of the Boardmaster platform. It demonstrates the technology's relevance for high-volume packaging production and its ability to support customers in scaling their operations internationally. Having looked at regional growth and our opportunities in packaging, let me turn to the third element of our growth agenda: targeted acquisitions.
Here, we are using M&A selectively to expand our growth potential while also strengthening the resilience of our core business. The two transactions have distinct but complementary strategic roles. manroland strengthens Heidelberg's recurring revenue base, thereby reducing the company's cyclicality. It gives us access to more than 3,000 customers across 35 markets and adds around 600 experienced employees. The key opportunity is to leverage this broader customer base for lifecycle growth, particularly through service, consumables, and spare parts, while creating additional cross-selling opportunities across the combined installed base. Polar plays a different role by strengthening and protecting our core business. The transaction safeguards important post-press know-how, supports an installed base of more than 30,000 machines, and helps secure supply continuity. We are now focused on execution.
The know-how transfer is planned by fiscal year-end, while the relocation of standard machine assembly to North Macedonia is an important lever to establish a more competitive cost position. Taken together, the two acquisitions address both sides of our strategic agenda. manroland expands our addressable lifecycle opportunity, while Polar protects critical capabilities and strengthens operational resilience. With that, I conclude the update of Heidelberg's ecosystem and hand over to Christoph Burkhard, who will guide you through our financial performance. Christoph, over to you.
Thank you very much, David. Good morning, ladies and gentlemen. This is my first conference call with Heidelberg, and I am very pleased speaking to you today in my new role. Let me begin the financial review with an overview of our performance in the first half of the financial year. While demand remained broadly resilient in H1, profitability was impacted by a decrease in volume, execution-related headwinds, project timing effects, and cost inflation, resulting in a mixed performance overall. Before turning to the KPIs, a brief comment on headcount. The 4% increase reflects the integration of manroland sheetfed and Polar and should not be interpreted as an organic expansion of our cost base. In parallel, we continued to implement the structural efficiency measures defined under our transformation program. Order intake remains resilient at EUR 1.14 billion, resulting in a book-to-bill ratio of 1.2.
Consequently, our order backlog increased to EUR 839 million, providing a good basis for the second half of the year, and Jürgen already highlighted that in his introduction. Sales amounted to EUR 913 million, reflecting lower sheetfed volumes. While the demand environment remained solid, order intake has not yet fully translated into revenue. Encouragingly, Q2 showed a sequential improvement, and the existing backlog supports higher sales levels in H2 compared with H1. Adjusted EBITDA margin reached 3.7%, impacted by lower volume, continued cost pressure, adverse mix effects, and the slower ramp-up of the projects in the technology segment. While profitability improved sequentially in Q2, the overall development underlines the need for focused execution in the coming quarters. Free cash flow amounted to EUR -125 million, reflecting working capital requirements, strategic investments, and acquisitions. Working capital management therefore remains a key area of focus.
Looking ahead, our priorities are clear: converting the order backlog into sales, improving profitability through disciplined cost and margin management, and strengthening cash generation. Now, let me take you through the key drivers in more detail, starting with our segment performance. In Print & Packaging Equipment, order intake remained broadly stable at EUR 549 million, while sales declined to EUR 359 million due to lower sheetfed volumes, particularly in commercial printing. As a result, adjusted EBITDA margin decreased to 4.4%, reflecting the lower volume base. Digital Solutions & Lifecycle continued to demonstrate resilience. Order intake increased to EUR 557 million, supported by lifecycle activities and the contribution from manroland sheetfed. Sales rose to EUR 521 million, while adjusted EBITDA margin decreased to 5.2%. Profitability was impacted by manroland functional costs as well as temporary operational effects.
In HEIDELBERG Technology, both order intake and sales increased to EUR 36 million and EUR 34 million respectively, driven primarily by continued growth in e-mobility. Adjusted EBITDA margin reached - 27.2%, reflecting ongoing investments in defense and security and the continued buildup of these businesses. Overall, our segment performance underscores the resilience of our service-oriented activities. However, lower equipment sales and the slower-than-expected ramp-up of selected growth initiatives limited profitability at group level in the first half. Now, let me briefly comment on regional performance. In EMEA, order intake declined by around 5%, reflecting the phase-out of the Italian incentive program and weaker demand in U.K. However, order trends improved in Q2, supported by markets such as Poland and France. Sales declined by 19% in the first half. Asia-Pacific continued to perform well, with order intake increasing by 11% and sales by 8%.
Growth was mainly driven by China, India, and Japan, with China showing particularly strong sales momentum. In the Americas, order intake increased by 11%, supported by stronger demand in Canada and the United States. Sales grew by 5%, with strong performances in Mexico and Brazil more than offsetting lower sales in the U.S. Overall, regional demand remained resilient, although the stronger order intake has not yet fully translated into sales and profitability at group level. Now, let me briefly walk you through the year-on-year development in adjusted EBITDA. Adjusted EBITDA declined from EUR 63 million to EUR 33 million in the first half, mainly reflecting the lower sales volume. The largest headwind was the negative EUR 28 million volume and capacity effect, primarily driven by lower sheetfed volumes and the associated lower capacity utilization. Now, importantly, this volume-related pressure was partly compensated by positive underlying operating effects.
Product margin contributed positive EUR 9 million, supported by pricing, customs duty refunds, and a favorable product mix. Operating costs contributed another positive EUR 7 million, reflecting the benefits of our cost flexibility measures and demonstrating our continued focus on protecting profitability in a lower volume environment. The other position amounted to EUR -18 million. Around EUR 10 million relates to lower vacation consumption, partly linked to short-time work. In addition, the position reflects higher project and legal expenses, as well as the absence of positive prior year one-offs. This was partly offset by an [initial —quarter. Profitability improved significantly as the year progressed, providing a better operational starting point for the second half. Now, turning to cash flow.
Operating cash flow amounted to EUR -90 million in the first half, compared with EUR -60 million in the prior year period, representing a year-on-year negative increase of EUR 30 million. The development was mainly driven by higher net working capital requirements and lower earnings. The increase in net working capital had a negative impact of EUR 63 million on operating cash flows, primarily reflecting inventory buildup related to order execution, partly offset by customer prepayments and trade payables. To put it maybe a bit more in casual words, this is why we are preparing ourselves for a stronger second half. Other operating changes included both cash-effective and non-cash-effective items, including acquisition-related effects and customs duties. Now, moving on to free cash flow.
Net investments amounted to EUR -35 million and included around EUR 13 million for the acquisition of the manroland sheetfed Group, as well as planned capital injections into ONBERG. As a result, free cash flow amounted to EUR -125 million compared with EUR -61 million in the prior year period. Overall, the year-on-year decline in free cash flow was primarily driven by lower operating cash flow, reflecting lower earnings, and, what I have just mentioned, the temporary working capital buildup related to order execution alongside strategic investments. Now, let me briefly comment on the balance sheet development. Despite a net loss of EUR 9 million, equity increased to EUR 596 million, supported by pension remeasurements. Our equity ratio remained solid at 25.9%. Higher discount rates reduced the present value of pension obligations, resulting in a 6% decline in pension provisions to EUR 568 million.
Per end of September 2026, the net financial position declined back into net debt of EUR -78 million, mainly reflecting the negative free cash flow of EUR -125 million in the first half. This translated into an actual utilization rate of 40% under our EUR 436 million syndicated loan facility. At the same time, this left 60% of the facility, which is running until 2030, as undrawn financial headroom. Now, let me conclude our H1 review with the following summary. First, demand remained resilient with order intake of EUR 1.14 billion and an order backlog of EUR 839 million, providing a solid basis for H2. Second, lower sheetfed volumes that were mixed effect and the slower ramp-up in HEIDELBERG Technology weighed on profitability. While Q2 showed sequential improvement, performance remained below our expectations.
Third, free cash flow was impacted by lower operating cash flow, lower earnings, temporary working capital increase, and strategic investments and acquisitions, reinforcing the importance of strict cash and working capital management. Now, with that, I close the financial review for the first half and conclude with our outlook. As you know, on October 29, we revised our earnings guidance to an adjusted EBITDA bandwidth of 5.6%-6.6% for the financial year 2026/2027. At the same time, we confirmed our sales guidance stable. The revised adjusted EBITDA guidance was predominantly driven by continued cost inflation, adverse product and regional mix effects, particularly in the Middle East, and an overall softer macroeconomic environment, leading to a more cautious investment behavior. Overall, our priorities for H2 are clear: execute on the existing backlog, improve profitability, and maintain disciplined cash management.
Now, before opening the floor for questions, let me conclude with one message. While the recent guidance revision was certainly disappointing, our actions are defined. Jürgen, David, and I are fully committed to delivering on our promises. Thank you very much for listening, and now looking forward to your questions. Saying that, let me hand it back to the operator.
Ladies and gentlemen, if you would like to ask a question, please press star, nine, and pound key on your telephone keypad. If you would like to revoke your question, press star, three, and pound key. You can also use the dial-in function in the webcast and raise your hand if you would like to ask a question by phone. I repeat, to ask a question, please press star, nine, and pound key on your telephone keypad. I wait a moment to see if anyone raises any questions. I repeat again, if you would like to ask a question, please press star, nine, and pound key on your telephone, or use the dial-in function in the webcast and raise your hand. Still, so far, no question has been submitted. I repeat again, to ask a question, please press star, nine, and pound key on your telephone.
We have a question, Norbert, from Dr. Kalliwoda Research GmbH. The floor is yours.
Hello, good morning. Okay. Hello, good morning. Thank you so much, Kalliwoda, Mr. Otto, Mr. Burkhard, and Dr. Schmedding. I have two questions. The M&A, the takeover of the services and spare parts of manroland. You have also your own service stations. Can you quantify maybe how many service stations you will close due to synergies that you take two together when they are, for example, in one city in different countries? The second question might be regarding the order intake, Digital Solutions & Lifecycle compared with Print & Packaging Equipment. These are, let's say, in the order intake, similar figures. I see stronger development in the print and packaging. Do you agree for the last quarter this year, or you shed some light for the upcoming year in regards of order intake of those two divisions, please?
Thank you, David. David will take your question.
Yes. First, related to your question to manroland. We took over manroland in all countries, so all the existing, let's say, locations, close to 40 countries where they were present. There is, of course, an overlap between Heidelberg stations and also manroland stations, but nevertheless, we are looking country by country in the synergies. For example, in Spain, we found that manroland has a service hub in Madrid. We are based in Barcelona, so this is, of course, an addition in our portfolio, also helping us in the servicing of our install base. But in other countries, of course, we're closing down mainly the service stations or the locations of manroland, but integrating the people, especially the service people in our network, because it saves us as well as servicing the Heidelberg install base in future. There are synergies.
Of course, we have a clear focus, and this is what we have communicated, what we are doing right now. We will finish latest in two years. We integrated the whole manroland organization into the Heidelberg. We are good on track, and this will help us to increase the business, the lifecycle business, and service and consumables, and will help us also with regards to the profitability. First question. Second question, regarding order intake and trend, and as Christoph Burkhard just explained, order momentum was good, especially in the second quarter. We see, looking ahead in both segments, in Print & Packaging Equipment, and also in our Digital Solutions & Lifecycle business, the order momentum will continue over the next months. Especially in some regions, looking to Asia, order momentum is still good. We are in a good way, and also in Americas and Europe.
At the end, trend will continue, and momentum that we are seeing will help us to close the year according to our guidance.
Thank you so much.
Oh, there aren't any other questions in the line. I repeat again, if you would like to ask a question, please press star, nine, and pound key on your telephone, or use the dial-in function in the webcast and raise your hand. I wait a moment to see if anyone has any questions. At the moment, there seems to be no further questions. I thank everyone for your participation, and with that, I'll hand over to your host, Mr. Otto, for closing remarks.
Thank you very much, and see you soon.
Thank you very much.
Thank you.
Bye-bye.
Bye-bye.