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Report of the Management Board
2009 was one of the most difficult years in the existence of our group. The changing market conditions and economic problems have resulted in far-reaching strategic decisions and a substantially lower result, both operational and as a result of the provisions charged to the reorganisation. Drastic measures included the decision to close down Roto Smeets Utrecht, to substantially reduce Roto Smeets Etten’s capacity and start further cost cutting reorganisations in other parts of the company, resulting in a reduction of approximately 550 jobs. This reorganisation will be completed halfway through 2010. By focusing on fewer production locations, undiminished sales capacity, an even sharper focus on cost control and investing in new technology to remain fit, we are resisting the economic problems. The expectation is that 2010 will show no growth and that our sector, as a whole, will not be able to solve its problems in the years to come. Although many competitors are financially in a bad state, we are still seeing that not enough capacity is taken from the market, leading to continued strong pressure on margins for this year. As a company we continue striving for improvement of our market position. We shall remain alert with regard to market developments. Roto Smeets Group in the past made a conscious decision to maintain a substantial market position in Western Europe with its business line Print Productions, both in sheetfed offset and gravure printing as in web offset printing. The structural excess capacity, with its subsequent immense pressure on margins, is forcing the industry to consolidate in order to reduce capacity, thereby nursing the industry back to health. Various attempts on our part in the past years to play a role in this process have sadly not yet led to the desired result. The Supervisory Board and Management Board will continue to strategically monitor the market so as to be able to properly analyse and adequately respond to any consolidation opportunities that may arise. However, market and result development in 2009 forced us to take measures to keep the company strong in stand-alone mode, ready for the future. Starting point for these measures was that they should have a positive effect on the result, while maintaining our client-oriented market approach, and that this should be carried out within the framework of the social agreement. The measures that were taken mainly impacted the business line Print Productions. These already taken measures will reduce our capacity with 30 Kton, approximately 8% of our current capacity. All these interventions and developments contribute to a reduction in costs of at least € 30 million each year. This will boost strong recovery in the result, partly in 2010 and fully in 2011 and beyond. The business line Marketing Communications, of which MediaPartners Group is a part, is developing well despite the current adverse financial and economic climate. The investigation into divestment possibilities, started in 2008 in connection with the far developed expansion plans of the company at that time, has been stopped. Roto Smeets Group will further utilise and develop the potential of this business line. The strategy of the company will in the coming years be aimed at the following 3 tracks:
Internally, our focus remains on maintaining a healthy balance sheet by sharply controlling the operating cash flow and the company’s debt position. The best possible service and value propositions for our clients, striving for a healthy level of capacity utilisation whereby controlling costs, working capital and investments are the main focal points. The 2009 result was strongly affected by the restructuring programme announced in May 2009. The turnover from the continued business activities fell by € 32.1 million to € 415.4 million (2008: € 447.5 million) as a result of a decline in the circulation and size of magazines and the removal of publications from the market by clients. Due to constant decline in volume and lower sales prices, value-added was € 20.3 million lower, at € 192.6 million (2008: € 212.9 million). As a result of the restructuring programme, a sum of € 21.1 million was allocated to the reorganisation provision. Consequently the operating costs showed an increase of € 18.7 million to € 226.1 million (2008: € 207.4 million). The number of employees on the basis of FTEs fell from 2,189 at year-end 2008 to 1,962 at year-end 2009. In 2010 the remaining part of the reorganisation will be effected, which will bring the total reduction in FTEs as a result of the reorganisation to approximately 550. EBITDA, including the costs of the restructuring, fell to - € 2.8 million (2008: € 37.2 million). The trend in the pressure on the margins that started in the past few years continued in 2009. The operating result (EBIT) fell to - € 33.0 million (2008: € 5.8 million). The Roto Smeets Group achieved a net result of - € 27.5 million for 2009, compared to € 1.3 million for 2008. Cash flow from operating activities rose, despite the negative result, to € 29.1 million. The net investments in property, plant and equipment amounted to € 23.6 million (2008: € 23.0 million). Financial objective The company objective is to achieve an EBITDA /value-added ratio of at least 20 %, with a return on capital employed of 8 %. This with a minimum solvency ratio of 30%, a debt / EBITDA ratio of no more than 3 and EBITDA / interest costs ratio of at least 4.75. The company hereby focuses on free cash flow with a very strict discipline on investments for the longer term and strict control of costs and working capital. In the current economic climate, a solid financial balance sheet position is crucial for maintaining the confidence of our customers, our suppliers, our shareholders and our employees.
Roto Smeets Group has reached a new financing agreement with various banks. The agreed covenant is a solvency ratio of > 30%. Besides the with Fortis Commercial Finance and ABN AMRO reached facilities, the company is in consultation with parties for an additional funding to an amount of € 17.5 million. This additional facility will be used to repay the loan pro resto of € 9.75 million and the press investment in Weert. The company expects this to be finalized shortly. For this funding sufficient collateral securities are available. Based on completed and facilities still to arrange, there is no uncertainty concerning the financial sustainability of the activities, the implementation of the reorganization and the investmentprogramme of the current year. Dividend policy In 2009, investments that were already made were carried out as planned, new plans were however studied intensely in connection with the changing market. In 2009, the major investment programme at Senefelder Misset Doetinchem was completed. By investing both in modern web printing capacity, perfect binding capacity and logistics, a modern magazine printing facility has been created in the past few years. This has made Senefelder Misset ready for a challenging future. At Roto Smeets GrafiServices Eindhoven, the plan to integrate the company with its sister company Nadruk binders was further executed and a legal merger finalized. This was linked with investments in new finishing equipment. Furthermore, the new large format Jumbo printing press was taken into use. In combination with the closing of Roto Smeets Utrecht, an investment was approved for a new 72 page press in Weert to meet the tecnical demands of the market. Execution of this project is planned for the first half of 2010. This machine will replace two old presses of Roto Smeets Weert and is also capable of taking over a part of the production of the retail package that will be moved from Utrecht. As a result of the closing of Roto Smeets Utrecht, another 7 presses will be taken out of production. In order to further develop the possibilities of the market in Hungary, a used 2 X 16 page tandem press was bought, to replace the current machines that were more than 25 years old. This press is taken into production in March 2010. Roto Smeets Group has taken over the 15% management’s share in Antok Hungary thereby gaining complete control of the company. In order to make sure commercially that we keep delivering a consistent price/quality ratio aimed at the market situation, we will keep monitoring which investments contribute to the technical fitness of Roto Smeets Group. These are naturally only those investments which fit the desired result development of Roto Smeets Group. The printing industry in Western Europe has been confronted in the past few years with a structural decline of demand. The period has been characterised by the increasing use of other forms of media such as the internet, in addition to printed media and changing consumer behaviour. This decline was further strengthened in 2008 and 2009 by the effects of the current economic crisis. As a result of the above-mentioned decline, the printing industry in Western Europe is looking at a substantial excess capacity. Both in gravure printing as in web offset printing, there is a structural excess capacity of 25 – 30%. This excess capacity, together with a decline of paper volumes in Western Europe as a result of the economic crisis (approximately -17%), makes it clear that the enormous pressure on prices will continue, and is probably even set to increase. A radical rationalisation and/or consolidation of the capacity is required before there can be any hope of a recovery of the balance between supply and demand. In order to battle the short-term effects of the excess capacity and soften the blows of the economic crisis and to support a long-term profitability improvement, the company in 2009 announced the start of a restructuring programme as a result of which approximately 550 jobs would be lost. This restructuring programme has far-reaching consequences for the employees of Roto Smeets Group. Especially for Roto Smeets Utrecht which will be gradually phased out in 2010 and for Roto Smeets Etten where a large number of employees is going to have to leave the company. The other company parts are also reorganising, whereby some jobs will be lost. In addition to this, the Management Board has asked all colleagues who are not directly hit by these reorganisations and therefore retain their jobs to accept a delay of the 2.75% wage increase as agreed in their collective labour agreement, the GrafiMedia CAO. Almost all remaining employees agreed to this delayed wage increase. The increase will be spread over two years: 1.00% as at August 1, 2010, and 1.75% + 0.25% bonus as at August 1, 2011. Overview restructuring Gravure The capacity of Roto Smeets Etten will be reduced to 3 presses in a 4 shift roster. This will lead to 113 employees being laid off. Web offset At Roto Smeets Weert, over 50 jobs will have to go, while changes are implemented regarding the control of the production organisation. At Senefelder Misset, some 30 jobs will be lost as a result of the reorganisation. Finishing Support services Social plan This substantial reorganisation will transform Roto Smeets Group into a strong, modern, compact and financially healthy organisation, well equipped to deal with developments in the European market. In Western Europe, volumes in countries where Roto Smeets is active this year declined. The largest decline of gross media spending took place in the magazine segment. General interest magazines showed a decline of more than 16%, while trade magazines saw a decline of gross media spending by almost 20%. This decline was partly the result of smaller and incidental advertisers cutting down heavily or even completely cutting their advertising budgets. It is generally accepted that the current volumes form the new starting level of the printing industry, with on the one hand a ‘normal’ commercial growth rate of 2 to 3%, and on the other hand an increasing influence of cross-medial developments. Excess capacity in the industry, which in previous years amounted to around 15%, is now generally regarded to have arrived at 25% or even more. Paper Competition/market share Roto Smeets On the other hand, the trial period of the new press at our location in Doetinchem went very well. In the first half of 2010, the installation of the new web offset press for Roto Smeets Weert will also be completed. The objective of these measures is not in the end to increase capacity, but to use this modernisation of our production equipment to stay an important supplier in the Western European printing market. This policy to remain ‘fit for purpose’ will be continued in 2010. As shown by the geographic spread of our turnover (note 3, p. 76) and added value, we have remained active in all our export markets. General interest magazines Publishers are still finding the going very tough. Strongly declined income from advertising sales and plus propositions is forcing the publishers to take radical measures in order to realise cost reductions. This is still leading to the termination of titles, reorganisations of editorial and staff departments, reduction of travel expenses, both in the Netherlands and abroad, centralisation of locations, outsourcing of activities and even more ruthless negotiations regarding printing orders. Although with regard to volume development Roto Smeets has held its own in the market, the price decline has been substantial. However, inherent to our strategy, Roto Smeets is managing to defend its dominant market position without giving up too much of its margins. Contracts for no less than 5 titles from the national top 50 general interest magazines have been added to the printing portfolio of Roto Smeets and the contracts for 10 titles from the same top 50 were renewed. No single title was lost from this top 50, bringing the share of Roto Smeets in the top 50 from 28 to 33 titles. If we look at the top 100, we lost 4 titles in the 2nd category. This takes our total score in the top 100 to a gain of 1 title. Looking at the rankings of the acquired titles, we can state that we have further increased our market share in terms of volume. Retail market Within the market of gravure orders, where Roto Smeets has a market share in the Netherlands of 35 to 40 %, the company is able to hang on to that market share, although we do see considerable price erosion. The situation is different for offset orders. The closing of the Utrecht location and the termination of the short grain capacity gives Roto Smeets a substantially changed competitive position. In the longer term, however, it will as a result be impossible for Roto Smeets to serve specific parts of the Retail market in the offset segment. Senefelder Misset Roto Smeets GrafiServices De Wit Antok Printing volumes are declining under the pressure caused by the unfavourable economic development. Its technical possibilities still enable Antok to gain important retail orders. In the 4th quarter of 2009, a new sales office was opened in Budapest. The targeting of clients close to home should lead to more, also smaller orders, as a result of which an order mix is realised which leads to a higher added value. At the end of 2009, Antok became fully owned by Roto Smeets Group. Roto Smeets Group has decided to acquire the remaining 15% from the company’s management. This step was taken in order for Roto Smeets Group to be able to expand the management of this subsidiary company for the next phase of its development, and to be able to take advantage of opportunities in the market. The companies forming part of our business line Marketing Communications strengthen the relationship between brands and customers, but also between companies and employees. The MediaPartners Group creates binding and inspiring stories, stories the receivers also really want to see and hear. For this, MediaPartners Group uses a range of communication channels, including print, online, mobile, audio and video. Leads to Loyals optimises customer dialogue by way of marketing and process automation. Whether it concerns loyalty, lifecycle, retention, win back, customer satisfaction surveys, up & cross selling, tell-a-friend or customer value, a good programme starts with collecting customer data in one central marketing database. MediaPartners Group Market Clients are facing pressure on their budgets, while at the same time they want to be at the leading edge of digital developments. That has in a very short time span led to a total shift of the way in which communication is used as an instrument. If a short time ago print was still the leading channel, the trend now is that this will be combined with the use of a great number of different channels. For all these developments new earning models come into being. Models that can be very quickly tested in a practical situation, because the consumer of today van always be reached and traced as he is permanently online. This also causes the division between private and working environments to fade; technology makes it possible to work anywhere. Especially mobile means of communication seem to have a promising future. We must, however, comment that they still need to prove themselves as true content carriers. In the world of communication agencies, the traditional players are having an especially hard time. Much experimenting is done with new forms of services, but it is yet too early to completely let go of the ‘old’ thinking. This pattern leads to enormous movements in the sector. A fragmentation process is underway, both of agencies and of communication channels. A striking feature of this is the troublesome connection of creation and technology. Clients are not exactly sure who to turn to with their communication issues. Competitions whereby more than five, often totally different, agencies are invited to participate have become the norm rather than an exception. The effect of this is now clearly becoming visible: only a small number of large agencies are left. Activities in 2009 In the past year, we have been able to focus completely on the market and on our clients. Clients each of which has stuck with us, even when they have problems of their own. Despite the pressure on budgets and a single order that was cancelled temporarily, this has led to stable value added development compared to 2008 in Amstelveen and Brussels. Even if we look at other things than just the numbers, 2009 was a satisfactory year. Business relations in both countries gave us nearly an 8 out of 10 in a sizeable customer survey taken at the end of the year. New business relations also know where to find us. We welcomed KNRM, Beter Horen, Phonehouse and, in Belgium, Fidea Verzekeringen as new clients. Internally, the organisation worked on further cost control on all levels in 2009. Especially with regard to the project-related or direct costs, this has led to substantial savings. As a result, we were able to live with the hard decision to close down the advertising sales department. A clear shift is noticeable within our range of services. The share of one-off projects has increased, and by now hardly any concepts are developed and presented without an online component. Leads to Loyals The staff as a result of the reorganization fell from 2,189 Fte’s year-end 2008 to 1,962 Fte’s at December 31, 2009. In connection with the started reorganisation within the company we may call on subsidies from the EGF (European Globalisation Fund). Our Grafimedia sector, in co-operation with the publishing sector, has made 7 applications for subsidies. The arrangement provides compensation of 65% of the costs to be made to replace a redundant employee. Policy This does not only require a pro-active approach by the company with regard to personal development of all employees, but also requires from the employees that they process developments into personal and active behaviour. Company and employee are both accountable with regard to these requirements. Per employee it is recorded which activities have been carried out with which purpose. The reorganisations have had an impact on the progress of this policy, but also make it very clear that a job for life at Roto Smeets Group cannot be guaranteed. It is because of this that we have started a project in 2009, together with the employees that was geared towards this policy of continuous mobility, so that employees would actively manage their career development. Employment conditions In 2009, the car arrangement was amended, showing the importance that Roto Smeets Group attaches to Corporate Social Responsibility. The new policy not only looks at savings but also at environmental aspects. The drivers must adhere to the rules of the national programme of ‘The New Driving’. This is monitored through the ‘Drivers Information System’, whereby savings in the field of fuel, motor and tyre maintenance can show the driving skills and attitude of individual drivers. In addition to this, the choice of lease cars is limited to cars with environmental A, B and C labels.
Disability Working hours Information technology The diagram on this page shows all systems used within the company, most of which are linked. The arrows show which systems are linked through interfaces. Roto Smeets Group itself builds most of these interfaces, as a result of which the know-how to work with them is available within the company.
As a result of the new software and adaptations, the company emergency plans are being reviewed, which process will be completed in the first half of 2010. The company emergency plans describe the steps to be taken when the central computer system breaks down. In the first half of 2010 the local QTMS (Quality Tracking and Management System) servers will be moved to the central computer centre at the Deventer location. Market conditions for the printing industry remain poor. Excess capacity, the refusal in the market to come to a structural reduction of capacity and the delayed shake-out will lead to further continued erosion of margins. The fight to maintain titles at acceptable price levels and acquisitions of new assignments at acceptable rates continues unabated and therefore challenging. A result recovery will have to be realised through capacity reductions, lower wage costs through restructuring, increased efficiency and lower costs. The printing industry will have to undergo a long-term structural change in order to secure a healthy future. Turnover and profit levels in the printing industry will not return to what was regarded as normal before this recession. The world has changed for good. New operating models will have to be developed. The priorities for 2010 are:
Deventer, March 17, 2010 Management Board |
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