Roto Smeets Group year results 2010

- Extraordinary depreciation adversely affects 2010 results
- Normalised EBITDA improves by € 3.8 mln
- Management structure simplified

Roto Smeets Group looks back on 2010 as a turbulent year, marked by completion of the reorganisation, the market’s failure to recover and the course taken by the Riva Investments B.V. bid.
Despite recently stating their confidence in Roto Smeets Group, Riva Investments nevertheless decided not to pursue their bid for Roto Smeets Group NV shares. Since the figures for the third quarter did not match Riva Investments’ expectation at the time the merger protocol was entered into, Riva Investments sought to vary the agreements with Roto Smeets Group. Negotiations intended to vary the price and conditions of the intended bid failed to achieve agreement, after which Riva Investments resolved to terminate the process.

Developments in 2010
In recent years the West European graphics industry has been confronted with a permanent decline in demand. Primarily this was due to the increasing use of alternative media, changing consumer behaviour and technological developments, subsequently aggravated by the consequences of the economic crisis. The consequence was the creation of a considerable, permanent overcapacity in both rotogravure and web offset. In this market Roto Smeets Group is faced with increasing competition in all the geographical areas and industrial sectors in which it operates. This brought tremendous pressure on our financial returns. The radical reorganisations of 2009 and 2010 brought costs down, presaging a recovery in the results. In the second half of 2010 it became clear that the graphics industry was not going to profit from an economy that is cautiously on the mend.

2010 Result
The policy decision taken in 2010 that the Group would not participate in the increasing erosion of margins has had repercussions, starting in the second half of 2010, on machine occupancy and margins.

In comparison to 2009, nearly 9% less paper was processed in 2010, while revenues fell 17% to € 345.9 mln (2009: € 415.4 mln). This was the result of a combination of factors, such as the removal from the market of part of the capacity at Roto Smeets Etten and the total capacity of Roto Smeets Utrecht, margin erosion, and customers supplying more of their own paper. The drop in volume and lower prices led to an Added Value (AV) of € 166.1 mln (2009: € 192.6 mln).

Thanks to the reorganisation, personnel costs (excluding the costs of restructuring) dropped by 13 % compared with the same period in 2009. Compared to 2009, total employee numbers in the entire Group fell by 346 fte (full time equivalents) to 1,616 fte (2009: 1,962 fte). This yielded an improvement in normalised EBITDA, which improved by € 3.8 mln over the 2009 figure to € 19.2 mln (2009: € 15.4 mln).

Partly as a result of payments from the reorganisation reserve, cash flow from business operations fell to € –4.7 mln. Net investments in material fixed assets were € 16.1 mln (2009: € 23.6 mln).

Extraordinary depreciation
On each reporting date Roto Smeets Group determines whether there are any indications that any asset should be subjected to extraordinary depreciation. Should such be indicated, then the asset’s realisable value has to be estimated. At the end of the third quarter 2010, the book value of the net assets was higher than Roto Smeets Group’s market capitalisation and so it was concluded that there was an indication that assets might possibly be due for extraordinary depreciation. Based on these indications, Roto Smeets Group conducted an impairment test on the cash-flow generating operating units Print Productions Netherlands, Print Productions foreign (Antok) and Marketing Communications. The results of this impairment analysis led Roto Smeets Group to resolve to take an extraordinary depreciation of € 16.4 million (pre-tax).

Key figures

For an unchanged number of 3,290,275 placed ordinary shares, loss per share comes out at - € 6.85 (2009: € - 8.35).

To provide a better view of the operational result, the figures for 2009 and 2010 have been normalised:

At year end 2010 net debt had risen by € 19.9 mln compared to 2009 to EUR 84.3 mln (year end 2009: € 64.4 mln). After accounting for the extraordinary depreciation referred to above, at year end 2010 the Group still maintains a healthy balance sheet with a solvency of 34.5% (year end 2009: 39.2%).

Dividend
In view of the negative result, no dividend proposal will be made for 2010.

Focus 2011
Roto Smeets Group remains dedicated to maintaining its position in the communications industry. The Group will continue to offer multiple services, varying from communications services in the Marketing Communications business line to offering small and large scale printing services to publishers, home shopping businesses and retailers in the Print Productions business line.

For Marketing Communications we shall continue to seek organic growth in the Dutch market, while not ruling out opportunities for acquisitions abroad.

The problem for Print Productions is charting a course between not playing the game of unrealistic price competition while simultaneously maintaining full machine occupancy. In view of the unpredictability of the market, policy will focus crucially on continuity under difficult conditions by remaining alert to such opportunities as the market may offer, coupled with cost cutting where possible. This policy is made more difficult thanks to the announcement that suppliers of paper, ink and other raw materials are to raise their prices.

The assumption for 2011 is also that the erosion of margins will continue. For that reason the focus will be on internal improvements to further increase the group’s efficiency and vigour. All business operations – primary and support – will be screened to locate inefficiencies, if any, resulting in increased effectiveness, output and cost awareness throughout the organisation.

In the same context, the Supervisory Board has also resolved to simplify the corporate management model. The new situation is to be based on a management team of operating company and staff directors, reporting directly to the CEO. This will embed authority and responsibilities deeper within the organisation and allow a vigorous response to the changed market conditions. For this reason the post of COO has been declared superfluous.

The present employment conditions package will be looked at together with the Central Works Council, concentrating especially on historical elements the group can no longer afford in light of the present situation.

Roto Smeets Group will continue to pursue the course on which it has recently embarked with the prospect that Roto Smeets Group shall not only safeguard its continuity but will emerge even stronger from the present difficult market conditions.

Roto Smeets Group will make no statement about expected results for 2011.

Important financial dates 2011

Roto Smeets Group NV
Management Board

Deventer, 17 March 2011

Additional information:
The figures in this statement are based on the final annual accounts for 2010, which will be presented for adoption to the Annual Shareholder’s Meeting. The figures in this press release have not been audited.
In the event of any difference of interpretation, the Dutch original of this English translation shall apply throughout this Press release of Roto Smeets Group NV

The annual report with complete financial statement for the year will be made available on 28 March 2011. The Annual General Shareholders’ Meeting this year will be held on Wednesday 11 May at 15:00 hrs in the Rosarium, Amsterdam. The usual press conference will be held immediately thereafter. Editors may notify their intention to attend to emily.knegtel@rotosmeets.com.

Appendices:

Figures Roto Smeets Group 2010 PDF (281KB)