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PLM Group reports substantial gains in sales and operating earnings

Thursday, August 14, 2003

Press release from the issuing company

MARKHAM, ON, Aug. 13 - PLM Group today reported substantial gains in sales and operating earnings for the three months ended June 30, 2003 as it continued to capitalize on investments made in new commercial print capabilities. Second Quarter Highlights - Earnings before income taxes were $0.7 million (3 cents per share), substantially higher than earnings before income taxes for the three months ended June 30, 2002 of $0.1 million (0 cents per share). - Net earnings were $0.5 million (2 cents basic and diluted). Net earnings a year ago included a $1.3 million income tax recovery, which pushed net earnings to $1.2 million (4 cents basic and diluted). - Sales increased 11.1% to $24.9 million versus $22.5 million a year earlier, despite traditional seasonality and ongoing market weakness. - Sales and earnings growth were driven by contributions from Mailer Magic, Canada's largest off-line ink-jet imaging business, which was acquired in the first quarter of 2003, as well as higher value added assignments. - On June 16, 2003, PLM completed the acquisition of Optium, a leader in digital pre-media and large format digital imaging. Optium's results have been included in the consolidated operating results since the date of acquisition. Six Month Highlights - At $50.6 million, sales for the first half of 2003 were 3.7% higher than sales of $48.8 million a year earlier, driven by the addition of Mailer Magic. - Earnings before income taxes for the first six months of 2003 were $1.8 million (6 cents per share), 80% higher than earnings before income taxes of $1.0 million (4 cents per share) for the first half of 2002. - Net earnings were $1.2 million (4 cents per share basic and diluted) compared to net earnings of $1.9 million (6 cents per share basic and diluted). Net earnings a year ago included the impact of a one-time income tax recovery of $1.4 million. Management Commentary "This was another outstanding quarter for PLM as we used our expanded capabilities to overcome the impact of traditional seasonality, continued pricing pressure in the web print market, and what can best be described as lukewarm economic conditions in our territories," said Barry Pike, PLM Chairman and Chief Executive Officer. "We're particularly satisfied with the results of Mailer Magic, which have exceeded our expectations and provided further validation for its acquisition. But not to be overlooked is the performance of PLM's print-related operations, which made strong headway and produced excellent bottom line gains. " "This was our best second quarter in five years, which is remarkable considering the state of commercial print markets and the fact that we made a significant acquisition while beginning the integration of another," said Dave Stuart, President and Chief Operating Officer. "Optium, our most recent acquisition, was included in the consolidated results for the period June 16-30 this quarter. For the balance of the year, we expect Optium to contribute in excess of 10% of our consolidated revenues. We expect Mailer Magic to continue to provide good results as well. Overall, while other major printers have been forced into costly downsizings, PLM continues to grow. We attribute this to the quality of our team, our expanded capabilities, our strategic selling efforts, and a strict adherence to our commercial print strategy." "Despite the increased overhead associated with Mailer Magic, the cost of acquiring it and Optium, and our expanded sales effort, PLM has managed to hold the line on selling and administrative expenses, translate more sales dollars to operating earnings and preserve our balance sheet strength," said Peter Bradley, Executive Vice President and Chief Financial Officer. "This demonstrates that our plan is working and our business model is beginning to generate sought-after results for both our clients and our shareholders." Agenda "The major item on our agenda for the second half of the year is to add profitable sales for all of our operations by capitalizing on our expanded capabilities and the synergies between our operations," said Mr. Pike. "We're heading into what is traditionally the most active sales period of our year and we feel very good about what we have to offer our clients. Internally, we have a number of objectives surrounding Optium and Mailer Magic, the most significant of which is to complete the previously announced facility integration of Mailer Magic. This will take the balance of 2003 and will give us major logistical and operational benefits that should increase productivity and efficiency. We also remain on the outlook for strategic acquisitions, provided they fit into our well-defined operating strategy. We look forward to a progressive second half of 2003." About PLM Group PLM Group Ltd. (TSX: PGL - News) is one of Canada's largest commercial printers providing single source web and sheet-fed print, pre-media, large format digital imaging, visual, graphics, display and direct mail services to leading companies in a number of industries, including financial services, automotive, pharmaceutical, healthcare and communications. Visit the Company's web site at www.plmgroup.com Management's Discussion & Analysis ---------------------------------- This quarterly MD&A should be read in conjunction with the accompanying unaudited financial statements, along with the Company's annual MD&A and audited financial statements found in the annual report for the 12 months ended December 31, 2002. Overview PLM is a fully-integrated commercial printing company dedicated to building profitable sales and providing technologically-advanced, value-added solutions to a diversified roster of leading-edge clients. Founded in 1987, it is now one of the largest commercial printers in Canada and offers a unique set of innovative capabilities delivered by a team of more than 400 experienced staff. As a result of steadfastly applying its commercial print strategy and building its capabilities, PLM has achieved consistent profitability and has grown sales this year despite intensely competitive markets. Sales At $24.9 million, consolidated sales for the three months ended June 30, 2003 were 11.1% or $2.4 million ahead of the same period a year ago, driven primarily by the contribution made by newly-acquired Mailer Magic and higher value-added assignments in PLM's print-related operations. Sales growth was also achieved in the first half of 2003. For the six months ended June 30, 2003, consolidated sales were $50.6 million or 3.7% ahead of sales for the same period a year ago. Gross Margin Consolidated gross margin for the three months ended June 30, 2003 was $7.1 million or $0.6 million higher than a year earlier. Gross profit margin was relatively flat at 28.6% versus 28.9%, despite pressure on operating margins. For the first six months of 2003, gross profit was $14.7 million (29.1% margin) versus $13.9 million (28.5% margin). The increase in consolidated margin reflected higher sales and more value-added assignments in the sales mix. Expenses Selling and administrative expenses increased by just $0.1 million in the second quarter of 2003 versus the second quarter of 2002, and by the exact same amount on a year-over-year basis (first half 2003 versus first half 2002). Selling and administrative expenses were relatively flat year-over- year, as the Company maintained its policy of holding the line on expenses while sustaining its market presence. Reflecting lower borrowing costs and the benefits of debt reduction over the past two years, interest costs decreased by $0.1 million to $0.3 million in the second quarter of 2003, and by $0.3 million to $.6 million in the six month comparative period. Earnings To better illuminate operating performance, PLM has provided commentary on EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and earnings before income taxes, in addition to a discussion of net earnings, in this MD&A. However, management cautions that EBITDA and earnings before income taxes have no standardized meaning prescribed under GAAP. EBITDA for the second quarter of 2003 increased 21.4% or $0.5 million to $3.1 million from $2.5 million in the second quarter last year. EBITDA as a percent of sales also improved to 12.4% from 11.3% last year, driven by higher sales and more value-added assignments in the sales mix. EBITDA for the first six months of 2003 increased 12.1% or $0.7 million to $6.4 million (12.58% of sales) from $5.7 million (11.65% of sales) in the same six month period of 2002 as a result of the same factors. Second Quarter earnings before income taxes were $0.7 million (3 cents per share), $0.6 million higher than earnings before income taxes of $0.1 million (0 cents per share) in the second quarter of 2002. Earnings before income taxes also improved for the six months ended June 30 to $1.8 million (6 cents per share) from $1.0 million (4 cents per share) last year. Net earnings for the second quarter of 2003 were $0.5 million (2 cents basic and diluted). Net earnings a year ago were $1.2 million (4 cents per share basic and diluted), including a $1.3 million (4 cents basic and diluted) income tax recovery. Net earnings for the first six months of 2003 were $1.2 million (4 cents per share basic, diluted) versus $1.9 million (6 cents basic and diluted). Net earnings a year earlier included an income tax recovery of $1.4 million (4 cents per share). Financial Condition The Company made two significant investments during the first six months of 2003. In February, it acquired the business assets of Mailer Magic for total consideration of $2.6 million, including the issuance of 761,918 PLM common shares from treasury at a per share price of $0.60. In June, it acquired Optium for total consideration of $6.5 million including the issuance of 1,007,239 common shares at a per share price of $0.59. Notwithstanding these investments, the Company's balance sheet remained strong and fully capable of supporting the Company's growth objectives. Long-term debt to equity ratio was a healthy 41:59 at June 30, 2003 compared to 42:58 at December 31, 2002 and 42:58 at June 30, 2002. The Company's total debt to tangible net worth was 1.88:1 at June 30, 2003 compared to 1.99:1 at year end 2002 and 2.34:1 at June 30, 2002. On April 24, 2003, the Company received Toronto Stock Exchange approval to make a normal course issuer bid to repurchase and cancel up to 1,415,341 common shares. Any purchases, made at prevailing market prices, must be completed by April 24, 2004. Subsequent Event Subsequent to quarter end, the Company took advantage of favourable Canadian dollar exchange rates to refinance its final remaining US-denominated debt into Canadian dollars. As a result, the Company will record a one-time, non-cash foreign exchange gain in the third quarter in the amount of $1.0 million. The effective tax rate on this gain is significantly lower than the Company's normal tax rate, which will result in a one-time reduction in PLM's overall tax rate. The resulting favourable impact on net income from this transaction is expected to be slightly under $1.0 million. In addition, this initiative offers another benefit: the conversion of this debt to Canadian dollars significantly reduces the Company's future exposure to currency rate fluctuations. The terms of the re-financed debt are essentially the same as the original financing with a maturity date of December 2005. Outlook Management's market outlook has not changed materially since year end 2002. Business conditions remain challenging and competition for new work is intense. However, the Company is heading into what is traditionally its most active sales periods - the third and fourth quarters - and expects to continue to benefit from its expanded capabilities and contributions made by newly acquired Mailer Magic and Optium. Management will invest approximately $1 million in a facilities' relocation during the last half of 2003 to integrate Mailer Magic into PLM's main campus. This integration will provide major logistical and operational benefits and should increase productivity and efficiency. Management's expectations for profitable growth over the mid term are strong.

 

 

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