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SHARPLY HIGHER EARNINGS AND MARKEDLY HIGHER SALES
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Sales € 65.9 million (+8%)
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Operating result € 4.9 million (2011/2012: € 3.2 million)
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Net result € 2.9 million (2011/2012: € 1.7 million)
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Net profit per share € 3.40 (2011/2012: € 1.97)
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Dividend proposal € 1.75 per share (2011/2012: € 1.10)
Under challenging economic conditions, 2012/2013 turned out to be a good year for Holland Colours. Sales rose by 8% to € 65.9 million (2011/2012: € 61.2 million). In terms of volume, the growth was 1%. Currency effects, especially resulting from a stronger US dollar during a large part of the financial year, had a positive effect of about 3%, while price and mix effects also had a positive effect of around 3%. Whereas in the first half year sales increased by nearly 10%, sales in the second six months were more than 5% higher than over the same period the year before. After increasing 8% in the third quarter, sales rose 4% in the fourth quarter in comparison to the fourth quarter of 2011/2012.
Versus 2011/2012, all regions reported higher sales. In Europe, sales grew by 4%, growth that was spread evenly across the year. In Americas, sales growth was as much as 13% relative to the previous financial year, mainly driven by a relatively strong first and third quarter. Excluding currency effects, growth in this region was 4%. In Asia a third quarter with flattening growth was followed by a strong recovery in the fourth quarter. This contributed to sales growth in Asia of 12% by year end. Without currency effects, growth in Asia was 5%.
Sales in the Building & Construction market grew by 3% with a small decrease in volume. A marginal decline in Europe was amply offset by positive developments in North America.
In the Packaging market, Holland Colours achieved 3% higher sales on higher volume compared to the previous year. Although this market is less sensitive to macro-economic tendencies, it has become more competitive. Growth in the divisions Europe and Americas was partly offset by a decrease of sales in the division Asia.
Sales in Silicones & Elastomers were also up 3% compared to last year. Sales have risen in all divisions, with the largest absolute growth being realized in Europe.
Sales in Specialties increased by 6%. This growth was mainly due to Asia, supported by increased trade sales in this region. In Europe, sales in Specialties declined marginally, while the Americas realized an increase.
SHARP INCREASE OF NET PROFIT
The net profit rose in 2012/2013, from € 1.7 million to € 2.9 million. The operating result rose from
€ 3.2 million to € 4.9 million. An increase in sales of 8% with a rise in gross margin, both in absolute and percentage terms, are the key reasons for the higher results. The improved margins are due to both product-mix changes and a stronger US dollar during a large part of the financial year. The company also benefited from the full effect of passing on –where possible- higher raw materials prices experienced in 2011/2012. In the 2012/2013 financial year, raw-material prices showed a stable to declining trend. Operating expenses are at about 6% above the level of the previous financial year, mainly as a result of an increase in personnel costs (including an accrual for profit-sharing) and currency effects.
Commonly, sales in the second half-year were lower than in the first, due to seasonal fluctuations. After a net profit of € 2.1 million in the first six months (2011/2012: € 1.5 million), the second half of the year closed with a net profit of € 0.8 million (2011/2012: € 0.2 million). During the year, the Return on Investment (ROI) increased to 15.6% (2011/2012: 10.0%).
HIGHER GROSS MARGIN FROM HIGHER SALES PRICES AND PRODUCT-MIX CHANGES
In 2012/2013, the gross margin as percentage of net sales was 45.7%, much higher than in the previous year (44.0%). In the first six months, a relative gross margin of 45.0% (2011/2012: 44.6%) was achieved. In the second half of the year, this was 46.5% (2011/2012: 43.1%). The higher raw material prices seen in 2011/2012 in particular have been passed on as far as possible in the sales prices of end products.
Changes in the product mix are another important reason of the higher relative gross margin. The increase in the share of Packaging and Silicones & Elastomers in the sales figures as a whole is a key cause of this.
HIGHER OPERATING COSTS
Total operating costs rose from € 23.8 million to € 25.2 million. Currency effects had an upward impact of approximately € 0.2 million compared to the previous year.
The main cost increase is shown in personnel costs, partly due to collective and individual salary increases and a rise in the average number of employees compared to the 2011/2012 financial year. Furthermore, compared to the previous financial year, an accrual for a profit-share scheme of € 1.0 million was included this year (2011/2012: nil). This scheme applies to nearly all Holland Colours employees. As a result of management changes, 2011/2012 personnel costs included extra expenses of about € 0.4 million (2012/2013: nil). At 384 FTE, the average number of employees is marginally higher than the previous financial year (2010/2011: 382 FTE).
Depreciation fell by € 0.2 million compared to the previous financial year, mainly because investments have remained well below the level of depreciation in recent years.
Other operating expenses are now at fractionally higher levels than last year. Offsetting lower additions to the provision for doubtful debts was an increase in maintenance costs, a rise in other personnel costs and higher expenses for external consultants (a.o. in relation to setting up the new participating interest in Indonesia).
CASH FLOW AND FINANCING
Operating cash flow rose from € 1.6 million in 2011/2012 to € 6.3 million in 2012/2013. The increase in the net result as well as the decline in working capital are the main causes of this.
At the end of March 2013 the working capital amounted to € 13.6 million, markedly lower than at the end of March 2012 (€ 14.8 million). On aggregate, the decrease in working capital was due to an increase in operational working capital of € 0.2 million (inventories were down € 1.3 million, and trade receivables rose € 1.6 million, while trade payables increased by € 0.1 million) and an increase in other liabilities of € 1.4 million (unlike previous financial year, there was a reserve for profit-sharing this financial year) with other receivables remaining almost unchanged. The decrease in inventories was mainly due to the decrease in raw materials of € 0.9 million. With raw materials prices almost unchanged, this relates specifically to lower volumes. The inventories of finished products decreased by € 0.4 million. The increase in trade receivables was partly due to the higher activity level in the last quarter of the financial year. Expressed in days, trade receivables rose from 62.4 to 67.1.
The positive cash flow from operational and investing activities of € 4.9 million (2011/2012: € 0.9 million) was more than adequate to compensate for redemption- and dividend payments, resulting in a positive net cash flow of € 3.6 million (2011/2012: € 2.2 million negative). The total interest-bearing debt decreased from € 9.6 million at the end of March 2012 to € 5.8 million at the end of March 2013. The most important banking ratio (Total Debt / EBITDA) improved from 1.8 to 0.8, and therefore remains comfortably below the maximum level agreed with the bank of 3.0.
During the last financial year, only the existing financing agreement of Holland Colours Americas Inc. in the United States was adjusted, specifically in relation to the amortisation scheme of a current mortgage loan and the interest rates on the current line of credit. The other financing agreements in place within the Group remained unchanged in 2012/2013. The bank covenants and the composition of the securities provided also remained the same. During the financial year, Holland Colours met all covenants agreed with the bank. No refinancing is scheduled in the forthcoming year.
The company’s solvency ratio increased to 61.3% compared to 55.3% at the beginning of the financial year. The increase in equity as a result of the positive net result and positive conversion results was offset by a decrease due to the dividend payment in July 2012. The positive conversion results of € 0.6 million (2011/2012: € 0.8 million positive) were mainly due to the higher rate of the US dollar versus the euro at the end of the financial year compared to its level at the end of March 2012. The conversion results are a result of equity holdings in subsidiaries which report in foreign currencies.
NEARLY ALL COMPANY OBJECTIVES REALIZED
The company objectives were formulated as follows:
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Sales growth of 8-12 % per year;
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ROI growth to a level of at least 15%;
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Growth in earnings per share, greater than proportional to the growth in sales.
With the exception of sales growth targets, where realized growth of 7.6% is slightly below the objective of 8%, the objectives in the 2012/2013 financial year were realized.
PROPOSED DIVIDEND
The net result per share amounts to € 3.40 compared to € 1.97 last year. It will be proposed to the General Meeting of Shareholders that a dividend of € 1.75 per share will be paid in cash (2011/2012: € 1.10). The following objectives have been taken into account in this regard:
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The existing financing arrangements and the expected cash flow are expected to be sufficient to meet the company's financial requirements.
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Regarding the Total Debt / EBITDA ratio, the ambition for the coming years is to remain at a level that is comfortably below the level of 3.0 agreed with the bank.
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Given the persistently uncertain economic conditions, Holland Colours is deviating from its aim of operating between 45 and 50% solvency.
OUTLOOK FOR 2013/2014
The economic climate is expected to remain uncertain in 2013/2014. Specifically in Europe recovery seems not imminent. The American economy is expected to continue its cautious recovery. Asian economic conditions are generally more positive.
The housing markets in the regions of Europe important to Holland Colours are expected to show little or no structural recovery in 2013/2014. For Packaging and Silicones & Elastomers not linked to the Building & Construction market, Holland Colours expects organic market growth. Furthermore, increasing sales of new products is expected to contribute to sales development.
In light of these macroeconomic developments, exploring new business- and market opportunities will be a key focus point.
Efforts aimed to increase operational efficiency will continue unabated.
As of 1 April 2013, the number of employees was 387 (FTE). This number is expected to increase over the course of this financial year due to higher levels of activity and the launch of the new participating interest in Indonesia.
As a result of investments in the above-mentioned participating interest, as well as due to investments in safety and operational efficiency and effectiveness, investments levels are expected to exceed depreciation. However, we expect to be able to finance these investments directly from the cash flow from operational activities.
The company’s policy is aimed to remain also in 2013/2014 well within the bank covenants.
Due to the uncertain economic outlook and the sensitivities to macro-economic tendencies of the markets in which Holland Colours operates, Holland Colours will not issue a forecast regarding the 2013/2014 financial year.
The 2012/2013 annual report and the agenda for the General Meeting of Shareholders of July 11 will be published on our website www.hollandcolours.com on May 30.
Holland Colours NV, 29 May 2013
The Board of Directors
Rob Harmsen
Tineke Veldhuis - Hagedoorn
For further information:
Holland Colours NV
Rob Harmsen
CEO
Telephone: +31 55 3680 700
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