Peter Byrom - Chairman
|Underlying profit before taxation (note 9)
|Profit before taxation
|Research and development expenditure (note 9)
|Net cash inflow from operating activities before taxation
|Basic earnings per share (note 2)
|Underlying earnings per share (note 2)
|Dividends per share (declared – note 5)
- Sales growth of 9 per cent before the impact of movements in exchange rates
- Further progress in full-colour digital label press sales
- Investment of £18.2 million in research and development, continuing to fuel the new product pipeline
- Underlying pre-tax profit growth of 9 per cent
- Strong operating cash flows; net cash of £40.1 million at year end
- Dividend increased by 5 per cent
Peter Byrom, Chairman, commented “The Group has made good progress in growing sales, profits and cash during the year while continuing to develop new products and investing in further expanding our digital printing business. Underlying pre-tax profits increased by 9 per cent to £57.6 million and net cash inflow from operating activities before tax was £65.8 million. The Board has declared an increase in the annual dividend of 5 per cent.
“Our business in Europe reported double-digit sales growth in local terms, benefiting from more buoyant markets in the early part of the year. We also reported good growth in the Americas and Asia. Market conditions have been changeable with a more cautious attitude returning among customers in many markets over the second half of our year.
“We are pleased with the success of our latest i-Tech product range, which provides customers with class-leading performance, while our research and development teams are busy working on further product innovations. The aftermarket business continues to grow in line with our expectations.
“Our latest full-colour digital label press has been well received by customers and we are seeing increasing adoption of digital printing technology among label converters. Activity levels among our sales teams, and the increase in sales of N-Series digital label presses this year, give us confidence in the potential for continued growth.
“The Group has had a good year and delivered results in line with our expectations. We continue to invest in research and development and in growing the capability and capacity of our digital printing business. However, we remain cautious about 2015. As announced in our Interim Statement, the investments we are making, coupled with uncertain market conditions, mean we expect results in 2015 to be at a broadly similar level to this year.
“Our strong products and our investments in developing our capabilities mean we remain optimistic about the Group’s longer-term prospects.”
This Preliminary Statement in 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 2014, our revenue split by location of customer was 23 per cent in the Americas, 43 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.
The Group has made good progress in growing sales, profits and cash during the year while continuing to develop new products and investing in further expanding our digital printing business.
Our business in Europe reported double-digit sales growth in local terms, benefiting from more buoyant markets in the early part of the year. We also reported good growth in the Americas and Asia. Market conditions have been changeable and we have seen a more cautious attitude among customers in many markets over the second half of our year.
We are pleased with the success of our latest i-Tech product range, which provides customers with class-leading performance, while our research and development teams are busy working on further product innovations. The aftermarket business continues to grow in line with our expectations.
Our latest full-colour digital label press has been well received by customers and we are seeing increasing adoption of digital printing technology among label converters. Activity levels among our sales teams, and the increase in sales of N-Series digital label presses this year, give us confidence in the potential for continued growth.
Over the last year, we have committed capital to a number of expansion projects. We commissioned our new factory in India, purchased land and started ground-work on a new factory in the UK, which will primarily serve the European and American markets, and approved the building of a new factory in China to meet our expansion plans in Asia. We have provided new and expanded demonstration and laboratory facilities for our digital printing business.
Good progress has been made against our sustainability agenda and we were pleased that our determination to reduce our environmental impact was recognised with a fourth consecutive rating improvement from the Carbon Disclosure Project. We also remain a member of the FTSE4Good index.
Earlier in the year, Philip Ruffles, who was a Non-Executive Director, and Garry Havens, an Executive Director, both stepped down from the Board. I thank them for their contribution to the Group over many years. In November, we announced the appointment of two new Board members, Sucheta Govil and Rachel Hurst. Sucheta joins us as a Non-Executive Director and has a background of senior roles in marketing and significant experience in Asia. Rachel is the Executive Director responsible for Group operations, including manufacturing, product marketing and engineering.
The Group’s global workforce is more than 2,300 strong. I would like to thank them, our distribution partners, and our suppliers for their contribution to our continuing success.
Our balance sheet remains robust and our cash generation increased our year-end net cash position to £40.1 million. The Board is proposing a final dividend of 14.76 pence, making a total of 22.74 pence for the year as a whole, an increase of 5 per cent.
The Group has had a good year and delivered results in line with our expectations. We continue to invest in research and development and in growing the capability and capacity of our digital printing business. However, we remain cautious about 2015. As announced in our Interim Statement, the investments we are making, coupled with uncertain market conditions, mean we expect results in 2015 to be at a broadly similar level to this year.
Our strong product range and our investments in developing our capabilities mean we remain optimistic about the Group’s longer-term prospects.
Chief Executive Officer’s Overview
In 2014, we balanced progress in sales performance with investments to sustain longer-term growth, while delivering profit improvement. We increased underlying pre-tax profit (see note 9) by 9 per cent and at the same time continued to invest in core business capacity and in enhancing and growing our digital printing business.
Market conditions varied as the year developed but they generally improved in most regions of the world, compared with the last two years. The year started well, with a wave of confidence in Europe as economic growth rates improved and the Eurozone crisis ended. Uncertainty about the Chinese economy receded and prospects for the broader Asian and North American markets were positive.
Against that backdrop, our order intake in the early months of the year was good, continuing the momentum from the final quarter of 2013. We saw growing customer confidence, culminating in a number of large project opportunities and successes for our sales teams. We reported sales growth at constant currency of 11 per cent in our interim results, with our strongest performance being in Europe.
However, as we entered our second half year, economic news was less positive in both Europe and parts of Asia. The deteriorating political situation in the Middle East and the tensions in Ukraine also affected customer confidence. Summer in the northern hemisphere once again proved a strong period for aftermarket sales but the return of general uncertainty slowed the intake of orders for new equipment. Sales growth in the second half year was 7 per cent before the impact of movements in exchange rates.
Our core coding and marking business had a good year, with a number of large project wins for new equipment, successes in our key focus sectors of food, beverage, pharmaceuticals and tobacco, and another year of strong aftermarket sales. I have been pleased with the performance of our European businesses, where revenue growth is well ahead of recent years, and with the USA and Canada, where we have maintained prior-year progress. In Asia, all subsidiaries delivered strong growth although weakness in the Chinese economy in the second half of the year held back sales. In our interim results, we reported increased price pressures in China and other developing markets, and the potential for further deterioration in margins if prices continued to fall. However, pricing was relatively stable during the second half year.
Aftermarket revenues remain the largest proportion of Group sales and during 2014 we had a special focus on improving aftermarket retention rates, across all products and businesses. Our ‘win-back’ programme was successful, improving an already impressive retention rate and increasing sales as a result.
We made good progress in the digital printing business, where we have focused on growing sales of full-colour digital ink jet printing presses into the label sector. There are clear drivers for transitioning to digital printing technology in this sector and while the rate of change is difficult to predict, the opportunity is attracting attention from both customers and competitors. We recognised revenue on 19 N-Series digital presses in the year and received orders or commitments for a number more that we will realise during 2015.
Full-colour printing is a new venture for the Group and while the applications and customer groups are adjacent to those for coding and marking, we have faced a considerable learning curve as we establish capability and capacity in the very demanding field of colour management. We are progressing well in that regard and in particular with the print quality and performance of our products, which is a testament to the hard work of many of our people as we develop our knowledge and skills. Feedback from customers has been very positive, confirming the economic gains and ultimate benefits to brand owners of using digital ink jet in their label printing business. The installed base of digital presses is growing and as our customers bring them up to full utilisation, we expect to see substantial growth in the fluids business.
We had a successful year of new product introductions in 2014. Early in the year, we launched enhancements to our continuous ink jet, laser and thermal ink jet printer ranges, both in hardware and fluids. We complemented this with a portfolio of product launches in the spring, to coincide with the important InterPack exhibition in Dusseldorf, Germany. Finally, in September we launched the N610i seven-colour digital label press at LabelExpo in Chicago, and were pleased to make immediate sales at the show.
We have continued to invest in production capacity and opened our new factory in India this year. Further investment is planned, with work on a new factory in China commencing during 2015. We are taking preliminary steps towards constructing a new factory and warehouse facility in the UK, on a site we have acquired next to our Group headquarters. We also made progress towards our goal of business excellence, making organisational changes to sharpen our focus on key process simplification and further improve customer service.
There have been a number of changes in the management team around the Group in 2014. We filled the role of General Manager in three of our largest businesses, China, India and the USA, through internal promotions. We also added a considerable number of people to our digital printing organisation, with many coming from the industry, helping to rapidly advance our skills and knowledge. At the end of the year, we were pleased to announce the promotion of Rachel Hurst, our Group Operations Director, to the Domino Printing Sciences plc Board. Rachel will now take full operational responsibility for our manufacturing, engineering, product management and marketing functions, and will lead the next stages of our business excellence programme.
There is no shortage of opportunity for our business to grow. The overall sales performance this year, in both the core business and new digital press products, gives me confidence in our ability to deliver medium-term sales increases at or above global GDP growth. As we look forward to 2015 and beyond, it is clear the digital printing business has great potential but requires significant investment. While I expect to see sales progression in 2015, progress in profit will be held back as we plan to invest further in research and development and in the broader sales and support organisation, helping to fuel future growth.
Chief Executive Officer
Posted on Tuesday 16th December 2014