> Planning and Forecasts Cover all Relevant Issues
> Risk and Opportunity Survey in all Organizational Units
> Management by Setting Objectives
As a stock corporation, we believe that our highest goal is to sustainably increase corporate value for our shareholders. We feel that an appropriate degree of corporate governance is correct and important. That is why the Group’s man- agement and control system has been assigned a very high priority. During the deep crisis in the print media industry in recent years, the speed at which we were able to successfully complete our corporate reorientation and compre- hensive restructuring measures had a decisive impact. As a result, we achieved an income turnaround in the previous year.
Timing for Systematic Planning and Management
We present on the left our planning clock, which illustrates how the processes of our systems for strategic and operational planning as well as management and control dovetail – both within the framework of our medium-term plan- ning for five years as well as throughout a single year.
Work on strategy development and monitoring extends throughout the year and is closely linked to operating activities. The Management Board lays out the major goals in advance in the strategy meeting (A), as a result of which the Board together with members of senior management derive divi- sional strategies (B) from product areas, regions, and functional units.
The operational planning process (C) begins in November. The targets for the individual plans of the corporate units are fixed then, with detailed plans developed that lay out concrete action to be taken. The overall annual budget is later approved by the Management Board and Supervisory Board (D) and thereby forms the benchmark for the following year. Key factors for success as well as strategic goals and projects that have been established and prioritized flow directly into the Balanced Score Cards (BSCs) of the units and remain in force for one year. In this manner, our strategy is also reflected in the incen- tive systems.
We monitor the goals established by the planning process with the aid of the monthly reporting system. This system also forms the basis for our quar- terly rolling forecasts (P). Within the framework of these forecasts, we assess the degree to which agreed-upon targets have been reached, thereby making it possible to undertake countermeasures in a timely manner.
Apr Mar Feb Jan D ec No v Oct Sep Au g Ju l Jun M ay Planning Clock P P P P P L A N N I N G C LO C K Rolling forecast Strategy development Operational planning Monthly reporting Strategy meeting Divisional strategies
Start operational planning
Approval A B C D 1 2 3 A B C D 1 2 3 P
Management Principle: Management by Objectives
We manage the entire Heidelberg Group based on the principle of Manage- ment by Objectives. This can be described as a process for establishing targets. In this manner, we ensure that our overall strategy is purposefully under- taken in all areas. This also includes the efficient application of resources and adherence to risk guidelines. Our Balanced Score Cards support all the Group’s units – and, in the end, each employee – in their striving to meet all the resultant targets. We show the Group’s current BSC on the left.
Core Financial Management Figures: ROCE, EVA and Free Cash Flow
Since our main focus is on a sustained increase in corporate value, the Return on Capital Employed (ROCE) and Economic Value Added (EVA) – key per- formance data that provide information about whether we have achieved an increase in value – play a key role in our management system.
The profitability of capital employed is determined by relating earnings before interest and taxes (EBIT) to the average operating assets in a financial year. We calculate the cost of capital based on the weighted average cost of capital – please refer to page 102 for additional information.
An additional measure is Free Cash Flow, the balance of net cash from operating activities and planned investments. This figure shows whether a company can afford to pay for necessary investments out of operating cash flow as well as whether funds exist for debt service or a dividend payment.
Core Figures Determine Targets for the Individual Divisions
We calculate ROCE, the value contribution, and free cash flow not only for the Group as a whole, but for the individual divisions as well. We also establish targets for other important management control figures – for example, the operating result and the calculated product result. We know precisely how much we are earning with a product in a particular region and we therefore always have an overview of the effect market developments could have. This also provides us with important information for optimizing our product portfolio.
However, we do not limit our analysis and assessment to ‘hard’ parameters alone, for non-financial ‘soft’ factors for success play an important role as well. For example, we acquire data on customer satisfaction – not least, by systematically appraising the service protocols that our sales and marketing specialists write up following each customer visit.
Finance Customers
Processes Employees/Training
Balanced Score Card of the Heidelberg Group (excerpt)
> Attract and retain creative, dynamic, and loyal employees > Support customer
orientation among all of Heidelberg’s employees > Optimize processes
for continual raising of employee qualifications > Optimize the customer-
oriented organization > Ensure an integrated and functional organi- zation
> Create value added for our customers based on technological expertise
> Sustainable increase in corporate value > Enhance the attractive-
ness of the Heidelberg share
> Position Heidelberg to ensure adaptability to economic cycles
> Become the preferred partner for the print media industry > Enhance the attractive-
ness of print media through value added > Offer solutions to
Incentive Systems at Every Level
We have established various incentive systems to make the vigorous pursuit of agreed-upon targets as attractive as possible. These include, among others, profit sharing by our employees, the employee share participation program, the stock option plan for members of senior management, and variable systems of remuneration that we have been increasingly emphasizing. The BSCs gen- erally serve as the basis for determining whether goals have been reached. The system of remuneration for the members of the Management Board, which we describe in more detail in the following section, is also based on incentives.
Internal Corporate Communications Expanded
Since a solid flow of information is the basis for effective work by our employ- ees, in recent years we considerably improved and expanded our internal cor- porate communications. This includes not only ongoing information sessions at all levels, but our Intranet offering as well. Employees are also kept informed by means of the corporate newspaper Heidelberg Post, which appears six times a year. Cross-divisional management units function as interfaces between the individual areas and functional units. Some have been established for the sole purpose of exchanging information, while others also make cross-sector decisions by majority vote.
Efficient System for Identifying Risks and Opportunities
How do we deal with risk? We follow the principle of risk optimization, accord- ing to which risks must be in proportion to profit expectations. We form an adequate provision to cover recognizable risk. Our policy on risk provisioning is generally conservative. We have also established a risk and opportunity management system, which is rooted in a well-established database. Last year, we adapted our methodology for identifying individual risk, overall risk, and opportunities so as to ensure that they are in line with our new organiza- tional structure. We also optimized our reporting system. The Group’s largest individual risks are now monitored and presented in even greater detail than in the past.
We retain proven processes and procedures. Our risk and opportunity management is uniformly applicable throughout the Group and is an integral component of the five-year planning process as well as the annual control- ling and reporting processes. To ensure that our requirements are satisfied, we have published an organizational directive and published obligatory procedures in a corporate guideline. This approach makes it possible for us to systematically and purposefully take countermeasures against risks – including those that result from our strategy – and to consistently benefit from opportunities.
All the operating units and corporate divisions are solidly embedded in this risk and opportunity management process, under which information con- cerning risk and opportunity is collected at the local level and then summa- rized. The decision-making responsibility for an appropriate assessment and the proper handling of risks lies with each unit’s top management. As a core responsibility of the members of senior management, all of them must main- tain their focus on risk. Each quarter, risks are summarized at the Group level and reported to the Management Board. The Board thus regularly exam- ines whether assessments need to be revised and determines the measures that need to be taken. Instant reporting is required, of course, should more serious risks unexpectedly arise.
After risks are identified, the key parameters – the probability of occur- rence, the amount of loss upon occurrence, and the expected course a risk could take – are quantified for a particular planning period. The average annual result of operating activities serves as the basis for ranking risk cate- gories. A uniform reporting threshold has been defined for each category. Since the divisions operate under a profit center orientation, risk management is closely linked with the process of operational controlling.
Our risk management system corresponds to Germany’s legal require- ments of the Corporation Control and Transparency Law. The effectiveness of our risk management process is regularly examined by our internal audi- tors – who additionally perform systems monitoring as part of the annual audit.
Details of how we confront interest rate, foreign currency, and liquidity risk can be found on page 47. We describe the Group’s current risk environment beginning on page 81.