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FP Group increases quarterly result to a lesser degree than expected and revises earnings forecast for the full year
The FP Group succeeded in increasing all key revenue and earnings figures in the second quarter of 2012, according to preliminary calculations, but were below expectations. After six months, the company generated EBITDA of EUR 8.6 million and EBIT of EUR 4.0 million, with revenue of EUR 82.7 million. However, in this period the challenges in the process and supply chain in the old and new production sites in Birkenwerder and Wittenberge have proved slower to solve than anticipated; the resulting supply backlogs have not been eliminated quickly enough and are having a particularly negative impact on the German business. On the revenue side, these led to a temporary adjustment of the revenue structure in the direction of the high-growth but low-margin consolidation business. Against this background, the FP Group continues to expect revenue of at least EUR 161 million for 2012 as a whole, but is reducing the earnings forecast. The company forecasts EBITDA of EUR 19 – 21 million instead of at least EUR 25 million as previously anticipated, and expects EBIT of EUR 8 – 10 million instead of at least EUR 12 million.
Challenges in the process and supply chain as well as in German sales
Since the beginning of April 2012, the FP Group has been producing its franking machines exclusively at the new Wittenberge site. However, it has taken longer than originally anticipated for the process and supply chain to establish itself at the new site and in the new spare part centre near Bremen. This has also delayed the elimination of supply backlogs which had accumulated prior to the discontinuation of production in Birkenwerder. Training and the use of experienced employees were required before production in Wittenberge reached a steady state in summer 2012.
The foreign subsidiaries were able to partially absorb the supply backlogs in the first half of 2012. In contrast, the bottlenecks directly impacted the FP Group in Germany, the biggest market, where the customers are supplied directly from the factory, in the midst of a state of upheaval. In the case of franking machines, the company focused increasingly here on the telesales sales channel, as it has previously in the USA and the UK. However, in contrast to these two strong telesales markets, the reaction among customers to telephone contact in Germany has remained restrained for the time being. Since June, sales in Germany have therefore strengthening on personal contact and have recorded increasing sales figures accordingly. Already beforehand direct sales had comparable success prior to this and boosted software and mail services revenue in particular in the first half of 2012; consolidation revenue alone rose by 15% compared with the prior-year period. On the other hand, dealer distribution, the second pillar of German sales, significantly trailed its original targets. The increase in the consolidation business during a period of growing price competition and the concurrent drop in the high-margin franking machine business did impact the German organisation’s EBITDA in the first half of 2012 stronger than expected.
In this context, the Management Board is adjusting its forecast for the year as a whole. Hans Szymanski, CEO and CFO of the Francotyp-Postalia Holding AG explained: “Production has been in a steady state since summer 2012 and will achieve an optimum level from autumn onwards. The German sales organisation is also reporting increasing sales figures again, with the dealer channel yet to reach its targets. We will not, however, be able to compensate for the losses from the second quarter of 2012. This is even more regrettable given that the FP Group is strategically on the right path”. PostBase, the new innovative franking system, is being very well received on the market, and interest in the De-Mail solution is high. Following the conclusion of the restructuring, the company is also profiting from considerable cost benefits and can now operate more efficiently on the market with streamlined organisation. Szymanski: “Last but not least, based on the earnings increase in the first half of 2012, I remain confident of a sustainable strengthening of the FP Group's earnings power in the coming years”.