Manroland’s insolvency filing last week was the sad but inevitable result of its failure to find an adequate strategy to cope with the massive reduction in its core market from 2008. This included a 54% drop in sales, from €2.1bn in 2006 to just €976m in 2010, together with a 48% drop in incoming orders, from €1.9bn to €976m over that period.
Attempts were clearly made to cut costs, resulting in the loss of around one in four jobs at the printing press manufacturer between December 2006 and its insolvency. But these did not equip Manroland to cope with the further reduction in incoming orders from the middle of this year, which scuppered its bid to attract fresh investment in the form of Swiss private equity firm Capvis, leading to the company’s insolvency.
It is ironic that Manroland is reported to have walked away from widely rumoured merger talks with arch-rival Heidelberg in the autumn of 2009 because of the latter’s poor financial results at that time. A further irony is voiced by Wyndeham Press Group chief executive Paul Utting, who says that Manroland has – along with Heidelberg and KBA – been a victim of its own success.
"There were too many press installations [in Europe] in the decade running up to 2008," he explains. "That overinvestment created huge overcapacity and reduced margins for printers. The reality now is that printers are generally well-invested and there is still overcapacity, so there’s little demand – certainly in the UK."
The other factor cited by all three press manufacturers is the massive change in the credit environment, which has prevented many businesses that would have invested from buying new presses. The question now, for Manroland, its rivals and its customers, is: where does the company go from here?
Recovery plan
Manroland has asked to continue with its restructuring as a debtor-in-possession, which is a German equivalent of the US Chapter 11, with the goal of rescuing the business. The insolvency will be supervised by a court-appointed administrator and any rescue plan must be approved by the court and creditors. This process often leads to parts of the business being sold. This could be the case with Manroland, says its administrator Werner Schneider, who has suggested it may be easier to dismantle the firm to sell it in smaller parts.
Following a statement confirming insolvency, Manroland has kept silent on what impact its predicament will have on its partnership with Océ, its presence at Drupa and which of the "key units" it aims to rescue through its insolvency plan.
Manroland’s administration is of most obvious benefit to its two German rivals, Heidelberg and KBA, with which it has waged a price war since 2008. Heidelberg has yet to tip its hand, although it is probable that the world’s largest printing press manufacturer will provide some information on its stance at its annual year-end press conference next week.
Meanwhile, Klaus Schmidt, KBA senior vice-president of marketing and communications, said that there would be "no interest in a merger" between either KBA or Heidelberg and Manroland.
"The core problem is that the printing press is not a growth market. The market for newspaper and commercial web presses has shrunk 60%. A merger wouldn’t solve that problem. Between ourselves, Heidelberg and Manroland, some 10,000 jobs have gone over the past few years,"
he explains.
Schmidt says the same problem would prevent an outside investor from seeing value in the current business. "The Swiss investor would have looked at the company and the outlook and decided not to go through with anything," he adds. "There might be investors from outside the sector, say in engineering, interested in some of the manufacturing. But restructuring has to come from existing owners; no-one wants to invest millions in downsizing."
What about the possibility of state intervention? After all, the German government is protective of its manufacturing industry. According to Schmidt, this isn’t a viable option; the state could not support Manroland without harming the two solvent German press manufacturers. This means that the most likely options to save the business would be for the creditors – predominantly Allianz and MAN – to take a hit on their investment, or for an overseas investor such as Shanghai Electric (which already owns Goss) to invest new capital, or a combination of the two.
It will be interesting to see how the insolvency proceedings develop, but for now we can only speculate and mourn the state of affairs that brought us here. There can be no schadenfreude where 6,500 skilled jobs and a firm over 150 years old are concerned – appropriately, KBA and Heidelberg have expressed regret for Manroland’s plight.
They no doubt understand that it would be unfair to blame the firm’s fate entirely on failure to act fast enough in restructuring. The eurozone crisis, proving thus-far unstoppable, has crippled business confidence and sparked another credit crunch. It is affecting all three manufacturers’ businesses, and the remaining two will be more focused on keeping their own houses in order than on Manroland’s insolvency
READER REACTION
Christian Knapp,
Managing director, KBA UK
"From a business
perspective, I think we have all been aware that the economic turmoil of recent years has had the effect of accelerating and exacerbating structural changes in our sector, to which some manufacturers have found it difficult to respond with sufficient speed. Now this development forces the issue and we must see how things develop. It is not the end of the book, but the end of one chapter and the beginning of another."
Mark White,
Operations director, Boxes Prestige
"It’s indicative of the state of the industry as a whole; we’re in the packaging sector, which is tough, and it’s even harder for commercial printers. If one of the big players like Manroland can go under, it shows that the industry is in a very serious situation. However, I am confident that if they do go, it will not happen overnight and I also believe that Manroland’s aftercare service would continue as a separate division. Personally, I think someone – like one of the big manufacturers – will step in."
Jim Todd
Sales director, Heidelberg UK
"I have mixed emotions. It’s the news we’d been expecting, but when you actually read it, it’s frightening. We’ve been saying for some time that the customer base has contracted and the industry has consolidated, but that hasn’t really happened to the equipment supplier base. It’s a terribly sad situation, but something’s got to give."
David Bunker,
Director, Close Asset Finance
"I think it will be some time before the final story comes through, but if Manroland’s demise has now occurred, then that will be a real shame. The structural changes in the market have meant that consolidation has been on the cards for some time. We still have some strong, long-standing players in the market – like KBA – who are investing and looking to gain market share. For them and others, there will be opportunities without a doubt."
Neil Sutton
Managing director, Komori UK
I’m shocked - it’s bad news for the industry, particularly when it’s a manufacturer that’s been around for this long, with its reputation and history. It’s very concerning, but then again it is a sign of the times. The market has been through so much turmoil and now it’s starting to affect the suppliers. There may now be one less manufacturer to fight with, but I doubt this will create a significant improvement in business. I imagine we’ll see some form of Manroland going forward.
Paul Utting
Chief Executive, Wyndeham Press Group
"Press manufacturers are victims of their own success, with too many installations [in Europe] in the decade up to 2008. That overinvestment created huge overcapacity and reduced margins for printers. The reality now is that printers are generally well-invested and there is still overcapacity, so there’s little demand – certainly in the UK . We’ve seen a complete tightening of credit and businesses of all types are struggling to raise finance to invest. Even where there’s a will, there’s often not a way."
