- VAS buoyed by enlargement of consolidated group and solid growth in Europe
- EBT contracts due to relentless pressure on prices in gravure printing sector
- Book gain on disposal of meiller redounding to reach annual earnings forecast
Freudenstadt, May 14, 2007. schlott gruppe today presents its interim report for the second quarter (January to March) of the 2006/7 financial year. The company was able to further strengthen its market position in Europe. By contrast, business continued to be dominated by intense pressure on prices – to the detriment of earnings in a traditionally weak season.
As announced on May 10, the company disposed successfully of its direct marketing division. Bernd Rose, Chairman of the Board of schlott gruppe AG, underlines: “All targets set related to the sale of the direct marketing business have been completely reached. In future we will focus all resources on our core activity print and further strengthen our competitive position in that market.” Heiko Arnold, Chief Financial Officer of schlott gruppe AG adds to the transaction: “Due to the successful restructuring of the direct marketing business in the past, we were able to realise an attractive valuation, which will lead to a visible decline of net debt of schlott gruppe and will increase the room to manoeuvre in our core business.”In accordance with the provisions set out in IFRS 5, the direct marketing segment is presented as a discontinued operation in schlott gruppe's latest financial report; prior-year figures have been adjusted accordingly.
Value-added sales (VAS) at Group level rose from €55.3 million in the second quarter of the preceding financial year to €60.7 million in Q2 2006/7, buoyed to a large extent by the first time inclusion of biegelaar and reus in the consolidated group as well as by growth generated in Europe. Revenue increased from €97.4 million to €122.5 million. At €1.8 million, earnings before interest and taxes (EBIT) for the second quarter of 2006/7 fell short of the prior-year figure of €4.0 million, a result of the further erosion of domestic prices. The loss before taxes amounted to €0.6 million, after positive earnings of €2.3 million recorded in the same period a year ago. Benefiting from tax credits, net profit for the period amounted to €0.1 million from continued operations, compared with €2.3 million in the previous year. Including the result from the discontinued operation, net profit for the period totalled €0.8 million, compared with €1.1 million. Consolidated earnings per share stood at €0.02, after €0.37 at the end of Q2 2005/6.
Calculated for the first half of 2006/7, VAS rose from €122.6 million to €130.0 million. EBIT amounted to €12.4 million, compared with €15.3 million in the previous year, and EBT stood at €7.9 million, as opposed to €12.0 million. Due to the obligation to capitalise corporate tax credits net profit from continued operations increased to €10.1 million in the first half of 2006/7, compared with €8.3 million for the same period a year ago; including the discontinued operation, consolidated net profit totalled €11.2 million in the first half, as opposed to €6.8 million in the preceding year. Consolidated earnings per share stood at €1.62 at the end of the first half, compared with €1.33 a year ago.
At March 31, 2007, the equity ratio of schlott gruppe was 28.0 per cent, which was comparable to the figure recorded at the end of the first quarter. At the reporting date, net debt stood at €229.8 million. As a result of the changes to disclosure associated with the former direct marketing segment, this was substantially lower than the figure of €238.7 million recorded at the end of the first quarter. The therewith induced improvement in indebtedness is to continue in future.
Buoyed in particular by the acquisitions of reus as of 1. April 2006 and biegelaar at the beginning of the financial year, together with an encouraging sales development abroad in the reporting quarter, the print segment recorded an increase in VAS from €54.4 million to €59.7 million in the second quarter. In the first half, VAS rose to €127.8 million, compared with a figure of €120.4 million in the same period a year ago. Despite this positive trend, print had to contend with a fall in EBIT from €4.3 million in the previous year to €2.0 million in the second quarter of the 2006/7 financial year. Due to higher interest charges attributable to the two corporate acquisitions and high capital expenditures mainly at the Freudenstadt site, EBT declined at a slightly more pronounced rate, from €3.4 million in the second quarter of 2005/6 to €0.6 million in the quarter under review. In the first half, EBIT amounted to €12.6 million, after €15.5 million in the same period a year ago, while EBT stood at €9.8 million, compared with €13.8 million in the previous year.
The earnings performance shows a pressure on prices significantly above the long-term average, which could not be fully compensated by short-term cost reductions. The current weakness in earnings is attributable to gravure printing, an area which recorded a significant year-on-year decline and fell short of targets. By contrast, web offset printing developed well in the period under review. Particularly the 48-page printing machine installed at schlott gruppe's Lübeck plant has proved to be a highly competitive asset. Business within the area of finishing also developed well over the course of the second quarter.
Value-added sales generated in the corporate services segment are attributable principally to cost allocations associated with print segment operations. Therefore, when analysing the revenue performance of corporate services, it is advisable to focus mainly on cost-related trends, the emphasis being on costs before finance cost because this segment is responsible for refinancing the other entities of schlott gruppe. On this basis, costs fell from €3.4 million in the second quarter of 2005/6 to €3.2 in the quarter under review, and from €9.2 million in the first half of 2005/6 to €8.5 million in the first half of 2006/7. This bears testimony to schlott gruppe's ongoing commitment towards cost containment.
schlott gruppe is currently having to operate under particularly challenging market conditions. In response to this situation, the Group will mobilise financial resources and management capacity freed up as a result of the direct marketing sale in order to create more room for manoeuvre within the print division. The book gain from the transaction allows schlott gruppe to reconfirm its EBT forecast of approx. €23 million (adjusted for the estimated earnings contributions from the former direct marketing segment) for the 2006/7 financial year.
The reduction of net debt for the Group as a whole by approx. €60 million is another crucial factor in schlott gruppe's medium-term and strategic growth. On this basis, schlott gruppe will continue to strengthen its market position in the European printing market with renewed vigour. The Group aims to compensate for the downward pressure on prices by implementing wide-ranging cost reduction measures focussed on the short-term adjustment of personnel costs to the current earnings level, further optimising production and exploiting its competitive advantages at a technical and strategic level.
Notes to financial data:
Alongside "revenue/sales", schlott gruppe uses so-called "value-added sales" (VAS) as a financial indicator – both in its external communications and as part of its internal controlling mechanisms. Revenue is subject to fluctuations that are attributable to the volume of paper supplied by customers as raw material for certain projects. In contrast to paper purchased directly by the company, paper supplied by customers is not included in the accounts of schlott gruppe. In the 2005/6 financial year, the so-called paper provision ratio stood at 79.9 per cent. As a financial indicator, "value-added sales" eliminates fluctuations relating to paper supplied by customers, thus reflecting the actual sales performance.
Interim Report 2nd quarter 2006/7
