Global Graphics reports third quarter 2007 results

Jim Freidah, chief executive officer stated, “Revenues from new business in digital print and electronic document technology continued to be strong during the third quarter showing continued year-on-year growth.  We signed our first contract for our newly launched next-generation Electronic Document technology during the quarter and expect to sign further contracts during the fourth quarter.  We also continue to be in active negotiations with a broad number of potential new digital print customers.  However, the slow adoption rate of the Microsoft® Vista™ operating system, or more specifically the slow release of XPS-related software applications that run on Vista, has had the effect of lessening urgency among printing hardware manufacturers.  This has caused many to delay their launch of XPS-compatible equipment, which in turn has translated into longer contract and revenue cycles for Global Graphics.  

“With regard to our traditional graphic arts segment, sales in this segment experienced their typically weaker third quarter levels and continue to be down year-on-year due to consolidation.  Graph Expo in September, this segment’s largest tradeshow of the year, was well attended, and combined with upgrade sales of the new version of the Harlequin RIP should drive stronger Q4 results.”

Third quarter performance
Sales for the quarter amounted to Euro 3.5 million, compared with Euro 3.6 million in the third quarter 2006, or a decrease of 1.9% at current exchange rates. Approximately 74.8% of the Company’s sales were denominated in US dollars this quarter (at an average rate of USD 1.377 for 1 Euro), and exchange rate fluctuations with the Euro continued to impact upon on the Company’s sales and results of operations. Had this quarter’s sales been converted at the average US dollar rate applicable in the same quarter of 2006 (USD 1.274 for 1 Euro), sales would have amounted to approximately Euro 3.8 million, representing an increase of 5.3% over those reported in Q3 2006 at constant exchange rates.

Total operating expenses (excluding cost of sales, intangible assets amortization and share compensation expenses, as well as the net effect of capitalized development expenses of Euro 0.7 million) for this quarter amounted to Euro 3.1 million, as in Q3 2006, and compared to 3.4 million in Q2 2007.

EBIT was Euro 0.9 million this quarter (or 25.3% of quarterly sales), compared with Euro 0.7 million in Q3 2006 (or 18.8% of Q3 2006 sales), or an increase of 32.0% over the figure reported for the same period of the previous year.

EBITA (pro forma operating profit, as defined in the accompanying table) was Euro 0.3 million for this quarter, compared with Euro 0.4 million in Q3 2006, or a decrease of 14.8% over the figure reported for the same period of the previous year. Accordingly, EBITA margin dipped to 8.9% of quarterly sales this quarter compared with 10.3% in Q3 2006.  Using the exchange rates prevailing in the third quarter 2006, i.e. at constant exchange rates, EBITA would have amounted to approximately Euro 0.5 million in Q3 2007, showing an increase of 41.3% over the EBITA figure actually reported in Q3 2006.

Pro forma pre-tax income (as defined in the accompanying table) was Euro 0.3 million for this quarter, as in the same period of 2006. Accordingly, pro forma pre-tax EPS was Euro 0.03 this quarter, the same as in Q3 2006.

Net income was Euro 0.5 million this quarter (or Euro 0.05 a share), compared with Euro 0.3 million in Q3 2006 (or Euro 0.03 a share), or an increase of 47.0% over the figure reported for the same period of the previous year.

Pro forma net income (as defined in the accompanying table) was Euro 0.1 million for this quarter, as in the same period of 2006. Accordingly, pro forma EPS was Euro 0.01 this quarter, the same as in Q3 2006.

First nine months performance
Sales for the first nine months of 2007 were Euro 12.9 million compared with Euro 12.1 million in the same period of 2006, or an increase of 7.1% at current exchange rates. Approximately 85.5% of the Company’s sales were denominated in US dollars in the first nine months of 2007 (at an average rate of USD 1.343 for 1 Euro).  Had sales for the first nine months of 2007 been converted using the average US dollar rate applicable in the same period of 2006 (i.e. at an average rate of USD 1.238 for 1 Euro), sales would have amounted to approximately Euro 13.9 million, or an increase of 15.4% over sales made in the same period of 2006 at constant exchange rates.

EBIT was Euro 4.1 million for the first nine months of 2007 (or 32.1% of the period’s sales) compared with Euro 2.5 million (or 20.5% of the period’s sales) for the first nine months of 2006, or an increase of 67.8% over the figure reported for the same period of 2006.

EBITA was Euro 2.4 million for the first nine months of 2007 (or 18.6% of the period’s sales) versus Euro 2.0 million (or 16.4% of the period’s sales) for the first nine months of 2006, or an increase of 21.5% over the figure reported for the same period of 2006.  Using the exchange rates prevailing in the first nine months of 2006, i.e. at constant exchange rates, EBITA would have amounted to approximately Euro 3.1 million for the first nine months of 2007, showing an increase of 55.6% over the EBITA figure actually reported for the first nine months of 2006.

Pro forma pre-tax income was Euro 2.4 million for the first nine months of 2007 (or Euro 0.23 per share), compared with Euro 2.2 million (or Euro 0.22 per share) for the first nine months of 2006, or an increase of 6.7% over the same period of 2006.

Net income was Euro 3.3 million for the first nine months of 2007 (or Euro 0.32 per share) compared with Euro 1.4 million for the first nine months of 2006 (or Euro 0.14 per share), or an increase of 136.0% over the same period of the previous year.

Pro forma net income was Euro 2.2 million for the first nine months of 2007 (or Euro 0.21 per share) compared with Euro 1.1 million in the first nine months of 2006 (or Euro 0.11 per share), an increase of 97.6% over the same period of 2006.

Share repurchase programme
In accordance with the authority granted to the Board of Directors by the shareholders in their meeting on 27 April 2007 the Company continued with its share repurchase programme in the course of the quarter ended 30 September 2007.
A total of 59,398 shares were repurchased by the Company in the third quarter 2007 at an average price of Euro 8.07 a share. It is the Company’s intention to continue to repurchase its own shares at such times and in such quantities as deemed appropriate.
More information on the Company’s share repurchase programme is available in the information memorandum on such programme (available in both French and English) which was released by the Company in April 2007, and can be downloaded from the Company’s website at: www.globalgraphics.com.

2007 guidance revision
Jim Freidah added: “Two major factors are now beginning to affect our 2007 guidance.  The first, as I have already noted in my comments on the third quarter, is that the slow launch of XPS-based applications and the subsequent lack of urgency of equipment manufacturers to launch XPS compatible devices will have an effect on our revenue stream.  The second is the continued weakening of the US dollar which has not only had an effect on our year-on-year performance during the first nine months (we have noted earlier the Euro 12.9 million sales we achieved in the first nine months of 2007 converted at the average USD rate applicable during the first nine months of 2006 would have amounted to Euro 13.9 million), but whose effect now has to be considered on the guidance that we issued in April this year for the full year 2007.

“Consequently we are now revising our sales and earnings guidance for 2007.  We now expect total sales for the full year 2007 to range between approximately Euro 17.0 million to Euro 18.0 million.  In view of the fact that our operating expenses have remained under tight control, we are adjusting EBITA slightly downwards at between approximately Euro 3.2 million and Euro 4.0 million. We continue to expect non-operating items (including exchange differences with regards to our currency hedging strategy) to have a nominal effect on our reported performance and therefore expect 2007 pro-forma pre-tax EPS to range between Euro 0.31 and Euro 0.40. Such revised guidance is based on actual spot market rates, namely 1.417 US dollars for 1 Euro and 2.04 US dollars for 1 British Pound.”

Third quarter 2007 conference call details
Global Graphics will hold a conference call today at 14.00 pm CET.  Callers should dial +44 (0)20 7162 0025 and mention "Global Graphics quarterly results conference call" to the operator.  The call will be available for replay for 7 working days by dialing number +44  (0)20 7031 4064 (freephone number UK only: 0800 358 1860), access code 770049.