Domino Printing Sciences 2013 Pre-Tax Profits Fall
Friday, December 13, 2013
This Preliminary Statement its entirety has been prepared solely to provide additional information to shareholders. It contains statements that are forward looking. These statements are made by the Directors in good faith based on the information available to them up to the time of approval. Such statements should be treated with caution due to the inherent uncertainties and risks associated with forward looking information.
The Group operates across global markets, providing manufacturers and printers with the ability to code, mark or print data, information or graphical images on to their products or packaging at high speed, typically in line in the manufacturing or printing process.
We design, manufacture and sell a wide range of printing equipment and associated consumables and support services that encompass ink jet, thermal and laser technologies. Our products are capable of printing on a broad spectrum of materials and substrates and offer full variability for personalisation, customisation or unique identification of products.
Demand for our products and services is created through legislation and mandate, typically meeting the need to inform consumers, and through providing manufacturers and printers with an economic means of decorating, identifying, tracing, protecting or authenticating their products for commercial or regulatory purposes.
In 2013 our revenue split by location of customer was 25 per cent in the Americas, 41 per cent in Europe and 34 per cent in Asia/Rest of World. We have an installed base well in excess of 200,000 printers operating worldwide.
Typical customers are manufacturers, multinational, regional and national companies, spread across a wide range of market sectors. We also supply printers of labels, mail and other web based materials to meet their short run and variable printing needs.
Food, beverage, pharmaceutical and commercial printing are the largest segments; combined they represent approximately 67 per cent of total sales. Our breadth of industry coverage and lack of reliance on any one or small group of customers provides a natural hedge against sector specific market risk.
‘Further progress and an increase in dividends’
I am pleased to report further progress of the Group during 2013. Sales have increased by 8 per cent to £335.7 million, underlying pre-tax profits were £53.0 million and net cash inflow from operating activities before tax was £54.9 million.
We have continued to invest in people, in particular expanding our capabilities in the digital printing business, and in our product range. Research and Development expenditure was increased to £19.5 million and we successfully introduced a number of new products including the N-Series digital label press.
The performance of TEN Media has been a major disappointment to us. Delays in the business coupled with uncertainty about its future have led us to the view that our investment has been permanently impaired. This has been treated as a one-off cost in the year.
The strong balance sheet and cash generation of the Group has allowed us to sustain the progressive improvement in dividends. This year the Board is proposing a final dividend of 14.06 pence per share which when added to the interim dividend of 7.60 pence represents an increase of 5 per cent for the year as a whole.
Over the course of the year the Board and its committees have addressed the corporate governance requirements arising from changes to regulations. In our 2013 Annual Report we will present our first Strategic Report on the business and increased disclosures on matters affecting audit and remuneration.
Earlier this year Garry Havens announced his retirement from the Group and will step down from the Board in December 2013. I would like to thank Garry for his contribution to the Group.
Phil Ruffles has announced that he does not intend to stand for re-election at the next Annual General Meeting on 19 March 2014. Phil has served as a Non-Executive Director for 11 years and I have appreciated his considerable contribution to the Group over this period.
Our recent order intake provides tentative signs that market conditions are improving. While we remain cautious about the prospects for a full recovery to historical levels of global GDP growth, we are optimistic that our investments in new products and capabilities coupled with emerging market opportunities will fuel stronger organic sales growth in 2014. We are continuing to invest in the business, improving our prospects for the future.
Peter Byrom - Chairman
Group Managing Director’s Overview
‘The momentum from sales growth in 2013 coupled with the investments we have made in support of key strategies, places the Group in a strong position to maintain performance improvements in 2014 and beyond’
My aspiration is to see sustained growth of our business several percentage points above global GDP growth. I believe this can be achieved by capitalising on new market and sector opportunities, by introducing new products to retain and attract customers and by taking advantage of legislation requiring increased variable data solutions on packaging. These drivers will vary year on year but, in combination with growing output levels as global consumption increases, my belief is that this should position the Group to deliver sales growth in excess of global GDP growth.
For the year to 31 October 2013 the business grew by 8 per cent. We experienced difficult economic conditions in our core sectors across Europe for most of the year, although as we closed the year short-term order intake was beginning to show more encouraging signs. In Asia, it was pleasing to see improving economic data emerging from China where our sales increased by 11 per cent over the year as a whole. Our recent trend of improving results in the USA continued with another year of double digit growth.
Evidence suggests that there are signs of improvement in many world economies, and confidence is starting to pick up. While some customers remain cautious, we are optimistic that we go into 2014 with a more positive economic outlook than in the past two years.
Our profit in the year to 31 October 2013 was broadly at the same level as the previous year. We have executed our plans to invest in a number of business initiatives, building a greater portfolio of opportunities to help drive growth. In combination, these investments have absorbed the additional gross margin generated from sales growth in the year but have established a number of platforms from which we will benefit in the future.
The major disappointment of the year has been the absence of revenue and profits from TEN Media, a significant investment for the Group in 2011, which was expected to generate positive returns during 2013. However, on-going delays and now a shortage of funds in TEN Media have frustrated progress in that business. This has held back our profit growth. Uncertainty around the future of the business has also caused us to consider the value of the investment the Group holds in TEN Media to be permanently impaired, and we have written down the value of that investment to nil. The potential for the TEN Media business in the future remains uncertain.
During 2013, we maintained a high level of Research and Development expenditure in our core business, continuing our programme of product harmonisation and development of common platforms. The goal is to build our product range on a common platform, delivering a consistently high user experience across the range while helping reduce complexity in the business, simplifying and streamlining our manufacturing and marketing operations. This is a key item in our strategy to sustain gross margins.
In addition to the platform work in Research and Development we invested in development of new products to meet the Falsified Medicines Directive, which is likely to be the most significant legislation driver requiring coding in the next three years and a significant growth opportunity for the Group. We identified the need to build additional capability into our printers and to develop new inks to meet the mandated requirements and I am pleased that we have completed the necessary work.
For a number of years we have been developing our digital label press business. This enables our expansion into a new and fast growing market as high-speed digital ink jet is adopted for the production of full colour labels applied to product packaging.This is adjacent to our core business and, we believe, will eventually overlap with it.
In 2013, we accelerated investment to build our digital print capability. Following on from the launch of the N600i full colour digital press in October 2012, we introduced the N610i in September 2013. This product introduces a wider colour range including white and significantly increases the size of available market. Our goal in 2013 was to install ten full colour presses. This was achieved (nine recognised in revenue in the year) and we hope to follow this up in 2014 with a further 25 digital press installations. Each digital press attracts considerable fluids revenues.
In addition to the investment made in technology and product development in the year, we also expanded our sales and marketing resources across Europe and North America and have built a strong team through which we expect to deliver our 2014 goals.
In November 2013, we launched our new F-series fibre laser to complement our industry leading successful range of CO2 lasers. This is an example of an investment we made to expand our product portfolio to both retain our position with existing customers in new applications and to position ourselves to attract new customers who have requirements we could not previously meet.
Over the past five years we have undertaken a major programme in our manufacturing operations to improve productivity and efficiency in the Group. This has included investment in IT systems to build out a more integrated global network, which although not yet complete, has yielded substantial performance improvements. In combination with this, we have made excellent progress in our efforts to consolidate our global supply network.
I am pleased with the progress we made with the execution of our strategy in 2013 in most areas. We end the year with a broad and strong product range, able to meet the opportunities available to us and an expanded sales and marketing network, with next steps defined to develop the infrastructure and operational performance of the Group. I am disappointed with the progress made in TEN Media and while I am satisfied that Domino has done all it can to support the programme, matters beyond our control have continued to frustrate progress.
In addition to our revenue growth aspirations, our goal is to further improve the bottom line return on sales of the business with a longer-term target of getting back to and then ahead of the 19% we achieved in 2011. We have indicated over the past two years that investment was needed to achieve this and this would erode the return in the short-term, but once we start to see sustained economic improvement, I am confident we are now in a position to start to move forwards on an upward trajectory.
Nigel Bond - Group Managing Director