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Report of the Management Board
In 2010 the expectation was that concentrating in fewer locations, coupled with sharp cost reductions, would enable Roto Smeets group to withstand the economic recession. All these measures and developments contributed to a reduction of costs that should contribute – in 2010 and subsequent years – to a recovery of the results. The unremitting pressure on prices in 2010 seriously eroded the positive effects of the intensive savings operations. It became clear in the second half of 2010 that the graphics industry would not be sailing the same course as the rest of the economy, which was cautiously regaining stability. It remains a fact that graphics businesses are subject to movements in the economy, so the industry was severely impacted by the very low level of economic activity. There was an expectation – which was shared by our competitors – that the graphics industry would be affected by the slight growth in the economy, but this failed to materialise, which signalled difficulties for the most important players. The ease with which the orders that were freed up could be absorbed by the market is an illustration of the immense overcapacity, which explains why price levels have failed to recover. Goals and framework Financial developments in 2010 Due to the reorganisation, personnel costs (excluding costs for restructuring) fell by 13% compared to the same period in 209. The total number of own employees fell compared to 2009 by 346 full time equivalents (fte) to 1,616 fte group-wide (2009: 1.962 fte). This meant that normalised EBITDA compared to 2009 improved to € 19.2 million (2009: € 15.4 million). Cash flow from business operations dropped to € -4.6 million. Net investments in fixed assets amounted to € 16.1 million (2009: € 23.6 million). Financing Roto Smeets Group has a line of credit agreed with ABN AMRO for € 12.5 mln. This line of credit will be paid off at € 0.125 mln per quarter, starting on 1 January 2012. The credit is attached to a mortgage with a principal of € 25 million, increased by 40% for interests and costs, taken on the real estate of Roto Smeets Deventer (in Deventer), Roto Smeets Etten (in Etten-Leur), Roto Smeets Weert (in Weert), Senefelder Misset (in Doetinchem) and De Wit BInders (in Eindhoven), as well as a lien on stocks. The agreement is not time limited and a minimum solvency of 30% has been agreed. This agreement is also associated with a surplus guarantee to Amstellease, established in Utrecht. The interest payable is 225 basis point above the Euribor one-month rate with a commitment fee of 1% per annum, reckoned quarterly on the amount not withdrawn. On 12 July a financial lease agreement was signed with ABN AMRO Lease to finance the 72-page press at Roto Smeets Weert. The principal is € 6.5 million and the repayment schedule is annuitized with a period of 96 months. The solvency requirement is 30%. An agreement with ING Bank was signed on 18 August 2010 for a facility of € 12.5 million. Of this facility, € 9.75 million has been used to repay the existing facility from ING Investment Management, while the remainder is available to finance working capital. The facility must be repaid according to contract, with the following repayment schedule: repayment of € 0.75 million on 31 March 2011 and 31 March 2012, with the balance of € 11 million due on 31 March 2013. The real estate of RS Utrecht, the premises of RSGS Eindhoven and Utrecht and the building in Heerhugowaard are attached to this loan. At Roto Smeets Weert the Lithoman IV was installed according to plan. Additional facilitative investments were found to be necessary. The shredder air extraction equipment was also renewed in Weert as it had reached the end of its useful life. The external afterburners were replaced at Roto Smeets Weert and Senefelder Misset in Doetinchem. The new autothermal afterburners save a great deal of energy. Two new Tempo gatherer-stitching lines were installed and taken into production according to plan at Roto Smeets Deventer. At Antók Nyomdaipari in Hungary the installation of a used The planned investments at Roto Smeets GrafiServices Eindhoven was completed by replacing a gatherer-stitcher on test with a definitive model from another manufacturer. The production facilities at Roto Smeets Utrecht were largely dismantled in 2010. Many machines have been re-used in other plants in the Group. A number of presses were dismantled and three were sold. One press still has not been allocated a destination by early 2011; Certain areas of the site have been remediated to improve their sales potential. Print Productions The total volume sold is almost 9% less than last year, mainly due to the downsizing at Roto Smeets Etten and the closure of Roto Smeets Utrecht (June 2010). The publishers expect a cautious recovery in the advertising market. The home shopping market is still developing well. The biggest decline in catalogues seems to be behind us and the home shopping companies are increasingly turning to printed catalogues to gain new customers and to encourage existing ones to buy. Promotion pressure remains high in retail, which translates into a continuing demand for leaflets to tell customers about special offers. In the contract negotiations with existing business relations, the customers are insisting on further price cuts thanks to increased competition from abroad, some of whom are looking to gain a foothold in the Dutch market with unrealistic pricing. Roto Smeets Group does not wish to associate itself with this sort of behaviour, which wrecks the market. The result has been lower machine occupancy, especially in the second and third quarters. Looking at the continuity of the industry as a whole, it is Roto Smeets Group's view that we have reached the nadir. The graphics industry is also confronted with price rises for raw materials, which our customers pay delayed or are not prepared to pay. In the meantime, more and more large competitors are experiencing financial difficulties. A ruthless shakeout of the industry could lead to the envisaged market recovery. The goal must be to belong among the companies that can profit from it. At home in 2010, Roto Smeets Group signed new contracts as well as retaining major customers. The pressure on results, the closure of Roto Smeets Utrecht and a drawdown of capacity at Roto Smeets Etten led to further economies in the offices abroad. Staffing was cut further, but with retention of their commercial vigour. The Paris office has moved to a cheaper location. The goal for 2011 is to have the customers take our full range of printing services. The smaller parts of their orders, which cannot be produced in our own organisation, will then be subcontracted. We shall also work on expanding our customer base to spread our risks and avoid excessive dependence. Web offset plants Roto Smeets Weert is a high quality magazine printer with a wonderful customer base and many, very appealing titles, both from surrounding countries and the Dutch domestic market. The plant has modern machinery, with the recent investment in a 72-page press being an excellent market proposition. Since the market showed no signs of recovery in 2010, both the size and print runs of large numbers of magazines were continually adjusted downwards, meaning that the proper financial returns were not achieved, despite the most modern production plant and a full order book, Senefelder Misset decided on a change of course. A cost cutting programme was initiated, together with a radical reorganisation involving the loss of 30 jobs. The commercial department summoned up all its vigour to reel in some 40 new titles to Doetinchem. A competitor's collapse released many new titles onto the market. Senefelder Misset was able to add more than 60 new titles to their order books, bringing the counter for 2010 to more than 100 new titles, meaning they now manufacture more than 650 different titles. Production turned out on average about 8% more than in a comparable hour in 2009, with fewer people. These extra productions were achieved without expanding the front office: they are to receive support in the form of a new Web portal, so customers can be involved more efficiently in the planning and management of their work. All these titles can only be produced in an economically responsible way with continual re-investment in new technology and production equipment. Investments are being made in two important departments: two stitching lines have been installed in Afterpress to replace two obsolete items, which had reached the end of their economic life span. In Senefelder Misset's sheetfed offset print shop they are changing from single-sided production on three sheetfed presses to two, ultramodern presses. This means they can print double-sided at extreme speeds in a single pass. This quantum leap in the technology guarantees their presence at the front of the market for the coming years. Up to period 6, Roto Smeets Utrecht carried on, even as the employee numbers fell. The plant has been completely closed down now and the presses there are either being sold or dismantled. No buyer has yet been found for the real estate. The spring parliamentary elections and the council elections in the fall were what governed developments in Hungary, where Antók Nyomdaipari is located. The economy was in a state of anticipation, so customers were reluctant to place their print orders. Gaining new orders from a new sales office in Budapest needs, it appears, a long running-in period. After its installation at the end of 2009, the M 600 finally started running in May 2010. This 10-year-old press was reconditioned with a lot of effort and time, but teething troubles led to higher costs due to overtime and paper wastage. Apart from a few details, most of the problems had been resolved by the end of the year. The rising prices of raw materials like paper and ink could not be passed on to the customers in Hungary either, as a result of fixed contracts and customers' expectations. Antók produces only on paper it has purchased itself, so this had a seriously adverse impact on their results. Sales prices were adapted to the increased raw material prices on 1 January 2011. The position has been accepted by most of their customers. Rotogravure plants At Roto Smeets Deventer they had to integrate the tasks of Finance & Economics, Order Management and Data Processing from Roto Smeets Etten, all of which went very well. Besides that, two "new" Tempo stitching lines started up in Afterpress. The emphasis in Deventer now is on shorter manufacturing times and further exploitation of Afterpress. Deventer has acquired new options with the purchase of the stitching lines: they can shorten the manufacturing times for a number of existing orders, and it seems that new orders can be acquired thanks to the availability of additional insert facilities. The three new titles for Northern & Shell, which were announced in October, are examples. Sheetfed offset plants For Roto Smeets GrafiServices Utrecht 2010 was a year in transition. When Roto Smeets Utrecht closed, the plant had to cope with the loss of a large number of Group orders. The market situation played its part, coupled with a very weak summer, all of which put pressure on revenues. The focus now is on finding new orders to fill lost capacity. Afterpress Last year production was cut back from four to three binding lines, which meant that some orders had to be subcontracted in the peak periods. Production has now been made more efficient so all orders can now be done in-house on the three lines. De Wit Binders is specialised in processing high volumes, giving it a unique place in the market. De Wit draws 40% of its added value from its own customers and 60% from other Roto Smeets operating companies. De Wit's possible move to Roto Smeets Weert will be reviewed for a year, as it turned out that it was not feasible to re-house De Wit at Weert, in particular due to the logistics of De Wit's operation. An alternative solution is being examined at the time of writing. Purchase The raw materials market experienced a lot of movement in 2010. Paper price increases were announced early on, but stiff competition and the fear of a new recession caused the price to fall once again. The paper prices rose once again in the second half, with a steep rise in January 2011. At the start of the year the energy prices were covered. A new electricity contract was signed in April, running to 1 April 2013, with cost advantages in 2010. The closure of Roto Smeets Utrecht, coupled with additional reorganisations in the other operating companies, meant that the only remaining purchasing capacity was centralised. This means that even small product groups are now purchased and managed centrally. Research and development Research and development in the Roto Smeets Group is mainly concerned to use automation to make the organisation as efficient as possible. In 2010 Roto Smeets Group transferred the Enterprise Resource Planning (ERP) system DiMS! to a new infrastructure with blade server technology and the Linux operating system. The benefits of this system include improved performance and greater application availability. Furthermore, 2010 was also concerned with the virtualisation of applications, part of the plan to centralise – and centrally manage – all applications. Application virtualisation offers greater availability, resource distribution, greater processor power and improved memory management. It also leads to further cost savings in ICT. Examples of these central applications are QMTS (quality control), PSS (paper flow records), and Workwizz (SAF) for the digital delivery and control of customer files. Digital scanning, processing and approval of incoming invoices was achieved in all operating companies in 2010. Tracking & Tracing went live in one location and can be rolled out further to other production sites in 2011. After intensive negotiations with the paper suppliers, Roto Smeets Group is now able to process all paper deliveries directly in the digital system. The next stage is digital ordering from the paper suppliers and digital receipt of their invoices. Partly at the request of a number of major customers, Roto Smeets Group also started offering digital invoices to customers in 2010. This process fairly well advanced, thanks to the cooperation of several customers, and digital invoicing will commence in the first quarter of 2011. The digital path has also been extended to the largest carrier to allow freight loads to be ordered digitally. This is due to start in the course of 2011, Q1. Considerable efforts were also made in 2010 to achieve far-reaching standardisation in the set up of and reporting by the product registration (QTMS) system. 2011 will be devoted to further internal digitisation, as well as exchanging information with customers and digital flows to both customers and suppliers. Work flows between Roto Smeets Group and its customers will lead to considerable improvements in efficiency, with added customer value. Marketing Communications The increased number of commissions has certainly brought with it more pressure of work, so employee numbers have been expanded with fresh, young talent. The rapidly changing nature of the work at MediaPartners Group requires new competence. It's not enough, nowadays, to fulfil just the specific demands imposed by writing for on-line and mobile concepts. There are far higher expectations of digital experience nowadays as such things as animation, gaming and video are rapidly gaining ground; there are also questions about intellectual property rights to cross-media content; and one needs to be able to brief, judge and manage outside parties, like website builders, database specialists and market researchers. In November the MediaPartners Group received four trade awards for cross-media and digital concepts. Both the professional jury members from Smin, the trade association, and visitors to the Customer Media Congress prized the development that these awards demonstrated in the MediaPartners Group. For its customers, MediaPartners dreams up innovative, increasingly striking communications concepts at a rapid tempo, which is why such organisations as Achmea, Maxeda, NS, Unilever and ABB have all chosen MediaPartners in recent months. Leads to Loyals Corporate Social Responsibility The Roto Smeets Group Corporate Social Responsibility policy has formed an integral part of the Group's business policy since its foundation in 1993. The Group communicates with interested parties in its financial and environmental annual reports and enters into dialogue with them to determine their need for information and to see what improvement needs to be made, if any. The policy of the Roto Smeets Group is concerned to ensure a good, safe and healthy working environment, the most transparent possible reporting on performance, contributing to society at large by making its core knowledge and services available and continuously striving to reduce the environmental burden. Employment in 2010 The many bankruptcies in the industry have exhausted the reserves held by the guarantee fund. This fund supplements the statutory redundancy payments [Werkloosheidswet: WW] for those affected by bankruptcy. This regulation has to be changed and the social partners have started talks. Agreements made per branch in regard to the Mobility Centre C3 are so important that they are being closely followed at Roto Smeets Group. In the near future, Roto Smeets Group is looking to make use of the Mobility Centre in relation to the Working in the Future Social Plan. At the end of the year, all employees once again received a Personal Income and Benefits Survey [PIVO], which contains detailed information on the value of their pay package and all individually applicable benefits. A CD-ROM came with the PIVO so the employees themselves could examine a possible individual industrial invalidity situation, the amount of their pension, and their widow and orphan benefits, which allows them to make detailed financial plans for the future. A new training scheme has been started, called Be Prepared. The start was physically supported with a bag, given to all workers, the contents of which are intended to raise their awareness of their own responsibility to create their own career and the support on offer from Roto Smeets Group. The 'Planning with Breathing Space' project was started in a number of plants in the third quarter. The project is concerned with make working schedules sufficiently flexible to satisfy the company, employees and the market. Environmental measures The Roto Smeets Group production plants are all certified according to NEN-ISO 14001, they have Chain-of-Custody Certificates from FSC (Forest Stewardship Council) and PEFC (Programme for the Endorsement of Forest Certification). Two plants also have the SWAN label for web-based printing orders. By participating in the European graphics industry associations, Roto Smeets Group keeps a close eye on developments in regard to a standard calculation for the carbon footprint. A number of initiatives have been started to arrive at an ultimate standard. Roto Smeets Group has opted to follow the ISO 16759 standard, which is anticipated at the end of 2011. CSR Report Roto Smeets Group's dividend policy is to pay out in cash 40% of the net result per ordinary share provided solvency remains above the required threshold of 30%. In view of the negative outcome, no dividend will be paid for 2010. Roto Smeets Group is unrelenting in seeking to maintain its position in the communications industry. This it will continue to do by offering a multiplicity of services, from communications services in the Marketing Communications business line to small and large-scale printing services for publishers, home shopping businesses and retailers in the Print Productions business line. Marketing Communications will continue to search for organic growth in the domestic market, while remaining alert to acquisition opportunities abroad. For Print Productions the problem is charting a course between not playing the game of unrealistic price competition while simultaneously maintaining full machine occupancy. Our competitors are experiencing difficulties, though, which only increases pressure on the recovery of our margins. The first signs are visible that our competitors, too, are going more for continuity and not just for short-term advantage. 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. In this regard, all business process, primary and supporting, will be screened for possible inefficiencies, resulting in greater effectiveness, more output and improved cost consciousness throughout the organisation. This will bring the cost structure into balance with the present size of the organisation. The present employment conditions package will be looked at by Group management together with the Central Works Council, concentrating especially on historical elements or elements the Group can no longer afford in light of the present situation. In view of the unpredictability of the market, policy for Print Productions 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 Market in which Marketing Communications operates is a stable one. MediaPartners is demonstrating healthy growth in this market; a path we wish to follow further in 2011. 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 on the results expected in 2011. Working together to progress, permanently on the lookout for improvements and innovating into the future from a secure base. If continuity is to be guaranteed for a wonderful business like Roto Smeets Group this is not optional – it's vital! Management Board |
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