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Global Graphics announces .3M Euro Profit for Quarter

Tuesday, April 29, 2008

Press release from the issuing company

April 28, 2008 --  GLOBAL GRAPHICS SA, a world leading developer of technology for open document and print solutions, announces financial results for the first quarter of 2008.

Comparisons for the first quarter of 2008 with the first quarter of the previous year include:
- Sales of Euro 3.0 million this quarter (Euro 3.4 million at Q107 exchange rates) compared with Euro 5.0 million in Q1 2007;
- Operating profit decreased to Euro 0.1 million in Q1 2008, compared with Euro 1.9 million in Q1 2007;
- Adjusted operating profit of Euro 0.2 million this quarter compared with Euro 1.3 million in Q1 2007;
- Adjusted pre-tax profit of Euro 0.4 million this quarter (or Euro 0.04 per share) compared with Euro 1.3 million in Q1 2007 (or Euro 0.12 per share)
- Net income of Euro 0.2 million this quarter (or Euro 0.02 per share) compared with Euro 1.4 million in Q1 2007 (or Euro 0.13 per share); and
- Adjusted net profit of Euro 0.3 million this quarter (or Euro 0.03 per share) compared with an adjusted net profit of Euro 1.0 million in Q1 07 (or Euro 0.10 per share).

Jim Freidah, Chief Executive Officer, commented: "As projected in February this year, sales in Q1 2008 were challenged by effects similar to those we experienced in Q4 2007, namely continued market trends, the economic slowdown, particularly in the US, and the weak US dollar, our primary sales currency. However, the most significant effect on the sequential decline of sales was the timing of the revenue recognition for the three major contracts that we had signed in November 2006 for which we recognized Euro 1.4 million in Q1 2007 and Euro 0.2 million in Q1 2008. These factors combined mean that total sales for the quarter were down 39.4% at current exchange rates over Q1 2007."

First quarter 2008 performance
Sales for the quarter amounted to Euro 3.0 million, compared with Euro 5.0 million in the first quarter 2007, or a decrease of 39.4% at current exchange rates over Q1 2007. Approximately 81.9 % of the Company's sales were denominated in US dollars this quarter (at an average rate of USD 1.504 for 1 Euro), and exchange rate fluctuations with the Euro continued to impact upon on the Company's sales and results of operations. Had this quarter's sales been converted at the average US dollar rate applicable in the same quarter of 2007 (i.e. USD 1.319 for 1 Euro), sales would have amounted to approximately Euro 3.4 million, representing an decrease of 31.2 % over those reported in Q1 2007 at constant exchange rates.

Total operating expenses (excluding cost of sales, intangible assets amortization and share compensation expenses, as well as the effect of the capitalization of certain development expenses totaling Euro 0.3 million in Q1 2008 and of redundancy expenses for another Euro 0.2 million) amounted to Euro 2.7 million in Q1 2008 compared with Euro 3.6 million in the same period of 2007, and Euro 2.8 million in Q4 2007.

Operating profit was Euro 0.1 million this quarter (or 4.6 % of quarterly sales), compared with Euro 1.9 million in Q1 2007 (or 37.5% of quarterly sales).

Adjusted operating profit (or EBITA, as defined in the accompanying table) was Euro 0.2 million for this quarter, compared with Euro 1.3 million in Q1 2007. EBITA margin amounted to 6.5% this quarter compared with 25.0% of sales in Q1 2007.

Adjusted pre-tax income (as defined in the accompanying table) was Euro 0.4 million for this quarter compared with Euro 1.3 million in Q1 2007. Accordingly adjusted pre-tax EPS was Euro 0.04 this quarter compared with Euro 0.12 in Q1 2007.

Net income was Euro 0.2 million this quarter (or Euro 0.02 per share), compared with Euro 1.4 million in Q1 2007 (or Euro 0.13 per share).

Adjusted net profit (defined in the accompanying table) was Euro 0.3 million for this quarter compared with Euro 1.0 million for the same period of 2007. Accordingly, adjusted EPS was Euro 0.03 this quarter, compared with Euro 0.10 in Q1 2007.

2008 outlook
Jim Freidah continued: "We expect that 2008 sales will be significantly lower than in 2007. Two major factors will contribute to this. The first is the negative impact of the exchange rates: if you were to restate 2007 sales at today's exchange rates (by using actual rates for Q1 2008, and forecasted rates of 1.597 USD for 1 Euro and of 1.250 Euro for 1 GBP for the rest of 2008), you would already see a decline in sales of approximately Euro 2.0 million over 2007. The second is that sales will show a further Euro 2.7 million decline when you factor out the difference in revenue that will be recognized in 2008 compared with 2007 as a result of the XPS contracts we signed in November 2006. In anticipation of this sharp decline in the value of projected sales for 2008, the Company undertook a reduction in headcount last January which, combined with other on-going cost-reduction initiatives, and along with the expected positive effect of exchange rates on the conversion in Euros of operating expenses (which are predominantly British pound- and US dollar-denominated), should allow the Company to reduce its 2008 operating expenses by approximately Euro 2.6 million over the Euro 12.9 million reported in 2007. It remains difficult to predict sales due to foreign currency exchange rate fluctuations, as well as the extent and timing of revenue which could be recognized should new contracts be signed through the rest of the year; however we anticipate that adjusted pre-tax profit for 2008 will range between Euro 1.0 and Euro 2.0 million, compared with Euro 3.0 million in 2007.

"Meanwhile, we are making significant investment in the development of technology to further leverage our competitive advantage in the market obtained through our work on XPS and also to expand the reach of our new electronic document technology. Our goal is to mitigate the fact that the expected uptake of XPS by equipment manufacturers is slower than originally anticipated and is resulting in longer contract and revenue cycles.

"We are pleased to see that we signed four contracts in Q1 2008: one with a major digital production press manufacturer to license the Harlequin RIP, and three electronic document contracts with companies developing software applications for transactional printing, a new web-based solution and an office print workflow solution. We firmly believe that demand for our electronic document technology will continue to grow and will translate into further contracts which will have a positive effect on future revenues. However, we do not expect any significant revenue contribution from these contracts to occur before 2009."




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