Business News
Annual results 2007 – Integration of Punch Graphix plc successfully completed
Friday 29. February 2008 - Loss-making activities discontinued Balance sheet structure significantly improved Results of continued activities (1) stable and in line with expectations Total sales EUR 163 million Operating result EUR 22.2 million Net result EUR 15.7 million
Punch Graphix nv today announced its results for 2007. The financial year has been concluded with total sales of EUR 115 million and a net loss of EUR -4.9 million, slightly better than expected. The results for the year are heavily influenced by the purchase of Punch Graphix plc in July 2007 and the sale of the RMS and EMS divisions. The pro forma consolidated results for the continued activities (1) for the year were in line with expectations: stable total sales of EUR 163 million, an operating result of EUR 22.2 million and a net result of EUR 15.7 million.
Key figures
IFRS 31 December 2007 31 December 2006
in EUR millions
Total sales 114.6 34.4
Total revenues 135.1 36.9
EBITDA 23.5 -3.6
Operating result (EBIT) -12.4 -4.2
Result before tax -16.5 -4.3
Net result -4.9 -3.0
Earnings per share -0.4 -0.65
Total equity 173.9 28.6
Net financial debt (2) 36.5 6.7
IFRS
in EUR millions
Pro forma full year
Technix + Graphix 31 December 2007
31 Dec 2007 31 Dec 2006 Continued activities Discontinued activities
Total sales 198.0 198.9 163.0 35.0
Total revenues 222.0 210.9 171.4 50.6
EBITDA 45.1 38.7 39.9 5.2
Operating result (EBIT) 0.8 18.8 22.2 -21.4
Net result 3.5 13.0 15.7 -12.2
Major events during the financial year
February 2007 Punch Graphix launched two new digital colour printers: the Xeikon 4000 and Xeikon 5000plus.
June 2007 The Robot Milking Solutions (RMS) division was transferred to WestfaliaSurge GmbH.
July 2007 Public placement: Punch Technix nv acquired 97% of the shares of Punch Graphix plc, partly through a capital increase (EUR 70.1 million) and partly through purchase (EUR 119 million). Following this transaction the existing shareholders increased the equity by EUR 9.6 million (in cash). Punch Technix nv changed its name to Punch Graphix nv.
December 2007 Private placement: Punch Graphix nv increased its capital by EUR 62.6 million, half placed by institutional investors, half through debt conversion.
Punch Technix Equipment Manufacturing sro (EMS division) was sold to Punch International nv.
Punch Graphix nv acquired another 2% of the shares of Punch Graphix plc (approximately EUR 5 million).
Events after the balance sheet date
With effect from 1 January 2008 Mr Wim Deblauwe has been appointed CEO of Punch Graphix nv. He succeeds Mr Ben Van Assche, who becomes a member of the Supervisory Board.
In January 2008 Punch Graphix signed a contract with the US-based MacDermid Printing Solutions, the worlds largest supplier of printing plates for newspapers. The contract is for the supply of 15 basysPrint F-series UV-setters.
Review of the annual results
In the course of the past financial year the company experienced a striking transformation. The results for 2007 were heavily influenced by the transactions effected during the financial year. The sale of the RMS and EMS activities and the acquisition of the Punch Graphix plc activities make it difficult to compare the results with those for 2006. To give the best possible presentation of those results which are relevant for the future, the review below will concentrate on developments in continued activities.
Sales and operating income
Because of the contribution of the graphics activities in July 2007, the consolidated total sales increased from EUR 34.4 million in 2006 to EUR 114.6 million in 2007. Total revenues for 2007 came to EUR 135.1 million (2006: EUR 36.9 million). Other operating income, amounting to EUR 20.5 million, consisted mainly of non-recurrent proceeds from the discontinued activities (EUR 15.9 million), as well as charged-on costs for R&D, rental income from buildings, and receipts of subsidies.
Pro forma consolidated for the whole year, total sales developed as follows:
Total sales Consolidated Europe Americas (1) Asia-Pacific (2)
in EUR millions 2007 2006 2007 2006 2007 2006 2007 2006
Digital Printing Solutions 114.9 118.9 74.4 68.2 36.4 43.8 4.2 6.9
Prepress Solutions (CtP) 48.1 45.5 48.1 45.5
Continued activities 163.0 164.4 122.4 113.7 36.4 43.8 4.2 6.9
Discontinued activities 35.0 34.4 35.0 34.4
Total 198.0 198.8 157.4 148.1 36.4 43.8 4.2 6.9
(1): North and South America
(2): Including Australia and New Zealand
Total sales for continued activities remained stable, in line with internal expectations. Movements in exchange rates (especially the US dollars depreciation) had a negative impact on total sales. Without this effect, total sales for continued activities would have increased by around 2%.
Sales of Digital Printing Solutions fell by around 3% owing to lower sales in the United States and the Asia-Pacific region. Around half of the fall is due to exchange rate differences. Growth recorded in Europe was 4% below the market growth rate. Sales of Prepress Solutions increased by 6%, which was in line with market growth.
Total sales Consolidated
in EUR millions 2007 2006
Equipment sales 85.2 88.5
Consumables 46.3 45.1
Service 31.5 30.8
Continued activities 163.0 164.4
Equipment sales dropped by 4%. Despite a negative currency effect, recurrent income (Consumables and Service) recorded a net increase of 3%, thanks to the growing number of machines installed at customers.
EBITDA – Operational cash flow
EBITDA increased from EUR -3.6 million in 2006 to EUR 23.5 million in 2007.
Pro forma consolidation EBITDA
in EUR millions 2007 2006
Digital Printing Solutions 29.8 28.5
Prepress Solutions (CtP) 11.0 13.2
Other -0.8 1.1
Continued activities (1) 39.9 42.8
Non-recurrent elements 4.5 0.0
REBITDA continued activities 44.4 42.8
Discontinued activities (2) 5.2 -4.2
Total (1+2) 45.1 38.7
Pro forma consolidated for the whole year, EBITDA increased by 16%, from EUR 38.7 million in 2006 to EUR 45.1 million in 2007. EBITDA for the continued activities amounted to EUR 39.9 million. However, this amount also included restructuring costs and non-recurrent expenses relating to the graphics activities amounting to EUR 4.5 million. Leaving aside these non-recurrent expenses, the operational cash flow for the continued activities increased by around 4% in 2007. The sale of loss-making activities generated a positive operational cash flow of EUR 5.2 million. These results were slightly above the internal expectations.
During the past financial year the group concentrated its efforts mainly on the integration of the activities of the former Punch Technix nv and Punch Graphix plc and the sale of the loss-making activities. The strategically important functions were largely centralised and the groups fixed cost structure was adapted to the new strategic plan. The trends in the segment results were largely due to the implemented reorganisation and centralisation. Although this operation has not yet been completed, management takes the view that the organisation is now sufficiently prepared for an expansion of activities, either through internal growth or through acquisitions.
The gross margins for the continued activities (1) remained stable at more than 60% of the total sales. Thanks to the implemented reorganisation, it became possible to reduce salaries and employee benefits by more than EUR 1 million net. This meant that fixed costs, bearing in mind redundancy payments of around EUR 3 million, were reduced by EUR 4 million. Other operating expenses relating to continued activities increased by EUR 1.1 million. This was largely due to non-recurrent expenses incurred to defend Punch Graphix plc against Punch Internationals public takeover bid, and also included several other non-recurrent expenses relating to the reorganisation and integration amounting to around EUR 1.7 million. On balance, leaving aside these non-recurrent expenses, other operating expenses for the continued activities fell slightly.
Operating result (EBIT)
Operating profit fell from EUR -4.2 million in 2006 to EUR -12.4 million in 2007.
This negative result can be attributed almost entirely to depreciation, amortisation, provisions and impairment charges relating to the discontinued activities, which amounted to EUR 26.6 million, all this mainly concerning the goodwill and capitalised R&D costs of the RMS division. The operating result for the discontinued activities amounted to EUR -21.4 million.
Pro forma consolidation EBIT
in EUR millions 2007 2006
Digital Printing Solutions 12.4 14.1
Prepress Solutions 10.6 8.4
Other -0.8 1.3
Continued activities (1) 22.2 23.8
Non-recurrent elements 7.1 1.8
REBIT continued activities 29.3 25.6
Discontinued activities (2) -21.4 -4.9
Total (1+2) 0.8 18.8
Depreciation, amortisation, provisions and impairment charges in connection with the continued activities amounted to EUR 17.8 million. This included non-recurrent impairment losses of EUR 2.6 million.
Operating profit for the continued activities fell from EUR 23.8 million in 2006 to EUR 22.2 million in 2007. Leaving aside this non-recurrent impact, the recurrent operating profit relating to the continued activities amounted to EUR 29.3 million, a 14% increase compared to 2006.
Finance income and result before tax
The interest payments for the financial year amounted to EUR 4.8 million (2006: EUR 0.4 million). This increase was almost entirely due to the financing charges at Punch Graphix plc and the higher interest payments resulting from the increased debt position in the second half year as a result of the acquisition of the shares of Punch Graphix plc.
Exchange rate income amounted to EUR 0.8 million (2006: EUR 0.6 million), and other financial income amounted to EUR -0.1 million (2006: EUR -0.2 million). Financial income for 2007 thus came to EUR -4.1 million (2006: EUR 0.0 million). The result before tax thus came to EUR -16.5 million (2006: EUR -4.3 million).
For the future it is important to note that the net debt position was substantially reduced by the capital increase in December 2007. This will have a positive impact on the financing charges.
Taxes and net result
Tax transactions for the financial year 2007 were positive (EUR 11.6 million), and were heavily influenced by the recognition of extra deferred tax assets on tax losses. This recognition was made on the basis of the projection of future profits over a period of five years in the new strategic plan, with the recognition cautiously limited to 75% of the future taxable profits to be set off against the tax losses.
It is important to note in this context that at the end of 2007 the group had still not recognised deferred tax assets of around EUR 6 million.
The net result for 2007 amounted to EUR -4.9 million, compared to EUR -3.0 million in 2006. This was better than expected by the group at the time of the publication of the interim results. For the continued activities over the whole of 2007, the net result came out at EUR 15.7 million, which was in line with internal expectations.
Balance sheet and cash flow statement
Free float Punch International Total
Total shares at 31/12/2006 1,709,891 2,881,873 4,591,764
Various transactions in 2007 223,000 -223,000 0
Public placement, July 2007 1,539,244 11,204,498 12,743,742
Private placement, December 2007 5,687,432 5,687,432 11.374,864
Total shares at 31/12/2007 9,159,567 19,550,803 28,710,370
Shares held (in %) 31.9% 68.1%
Public placement, July 2007 9,636 70,140 79,776
Private placement, December 2007 31,281 31,281 62,562
Total gross capital increase (EUR 000s) 40,917 101,421 142,338
The group carried out significant capital increases in 2007. Around 24.1 million new shares were created, which was equivalent to a gross capital increase of EUR 142 million (EUR 140 million net).
The table opposite gives a detailed overview of the movements during the financial year. The capital increases by Punch International comprised a contribution in kind of EUR 70.1 million in Punch Graphix plc shares and a conversion of an existing debt amounting to EUR 31.2 million.
The capital increase shown under Free float refers to an increase in cash. For further information on both transactions, see the relevant prospectuses, which are available at the companys website (www.punchgraphix.com).
The groups shareholder equity amounted to EUR 174 million at the end of the financial year.
Consolidated balance sheet 2007 2006
in EUR millions
Non-current assets 188.1 32,0
Current assets 79.6 20,1
Cash and cash equivalents (1) 40.7 0.9
Total assets 308.4 53.0
Total equity 173.8 28.6
Interest bearing loans & borrowings (non-current) (1) 52.6 7.6
Debt Punch International (1) 24.5 2.7
Other debts 57.5 14.1
Total liabilities and equity 308.4 53.0
Net financial debt (1) 36.4 9.3
Net financial debt / EBITDA 0.8 n/a
Solvency 56% 54%
Owing to the acquisition of Punch Graphix plc, all balance sheet items have changed considerably. The development in the various items can be deduced from the table opposite.
The net financial debt position, including an existing debt to Punch International nv of EUR 24.5 million (reported in the balance sheet under Other debts), amounted to EUR 36.4 million at the end of the financial year. The groups financial ratios for solvency and leverage are well above the internally set minimum levels, and they should enable the group to finance any expansion of its activities.
Consolidated cash flow statement 2007 2006
in EUR millions
Operational cash flow 19.9 -3.5
Cash from working capital 14.0 -4.3
Cash from operating activities 33.9 -7.8
Cash used in investing activities -64.0 -2.1
Cash from financing activities 68.9 6.7
Foreign exchange 0.9 0.0
Net cash flow 39.7 -3.2
Cash and cash equivalents end of period 40.7 0.9
The acquisition of Punch Graphix plc in the second half year of 2007 also had a significant impact on the cash flow compared to the previous year. The operational cash flow came out substantially positive, namely EUR 19.9 million (2006: EUR -3.5 million). The required working capital was reduced by EUR 14.0, mainly thanks to the proceeds from the discontinued activities. The cash flow from operating activities thus came out at EUR 33.9 million (2006: EUR -7.8 million).
Net cash used in investing activities amounted to EUR -64.0 million, mainly due to the purchase of Punch Graphix plc shares (EUR 58.0 million). Other investments amounted to around EUR 7 million, all of which were related to the graphics activities. These investments covered a six-month period; on an annual basis, investments were likely to come out at around EUR 15 million. The cash flow from financing activities amounted to EUR 68.9 million, of which EUR 38.9 million net came from the capital increases and EUR 28.4 million from loans (with EUR 24.6 million extended by Punch International). As announced at the time of the capital increase in December 2007, the group intends to refinance the EUR 24.6 million debt to Punch International.
Strategy and financial objectives
Strategy
De pillars of Punch Graphixs long-term strategy are as follows:
Worldwide presence and top-3 player in chosen niche markets
Punch Graphix wants to expand and strengthen its international presence, especially in the fast-growing markets of the United States and the Asia-Pacific region (including Australia and New Zealand). Close contact with customers through a streamlined and specialised sales and service organisation is of decisive importance to deliver optimum customer service and sustained success.
Punch Graphix aims to be a top-3 player in each market segment or niche market where it is active. Thanks to a successful combination of knowledge and technology, the company explores the market and concentrates on those niches where its proven technology and customer-oriented approach provides a competitive advantage for all those involved.
Focus on recurrent income and growth
Punch Graphix wants to offer its customers the highest possible convenience and efficiency: in addition to integrated solutions, each division also offers technical support, service and consumables. Recurrent income provides the company with a stable basis for further growth. Continuous improvement and optimum exploitation of the synergies between the divisions, the sales and service organisation and the partners support sustainable growth.
Value creation for shareholders and all other stakeholders
Punch Graphix concentrates its efforts on those higher-margin niche markets where it can play a leading role and can develop long-term relationships. In this way it can ensure sustainable and profitable growth for the benefit of all concerned.
Financial objectives
The main financial objectives are as follows:
a long-term return on equity of 15%;
total sales growth at least in line with the growth in those markets where Punch Graphix is active;
a strong ratio between operational cash flow (EBITDA) / actual total sales of at least 20%;
a healthy balance sheet and a solvency ratio of 30-35%;
a healthy interest coverage (EBITDA/interest) of more than 5.
Given the recent changes in the capital and financing structure, the first objective will most probably not be achieved in the current calendar year.
Punch Graphixs financing strategy is aimed at exploiting and/or optimising the following:
the ratio between risk and return of the various operating activities;
the distribution of the financing components across various parties, to limit the dependency on them;
the duration and the phasing of the various financing components;
the ratio between equity capital and borrowed capital over the short term and borrowed capital over the long term;
the use of the public and private capital markets.
Market developments and prospects
Punch Graphix is active in specific niche segments of the graphics industry. External market studies project a significant growth in the market segments where Punch Graphix is active. The digital printing segment is expected to expand by around 14.6% per year until 2015; and in the prepress segment, sales of CtP machines are projected to expand by around 12.5% until 2009. The group is currently one of the top-3 players worldwide in both segments. Hence the groups ambition is to post growth in the coming years which is at least in line with the market growth.
With Drupa, the worlds largest graphics trade fair, in the offing, it will be difficult to provide specific forecasts for 2008. Drupa is held once every four years. Traditionally there is a sharp fall in orders in the period leading up to the fair. The 2008 fair will be opened in late May. It is not possible to estimate Drupas impact on the 2008 results.
Dividend proposal
The Executive Board proposes that no dividend is distributed for the financial year 2007.