Cewe Color right on track after a good third quarter

Consumers order fewer photos straight after their summer holidays in the third quarter, but they order all the more added-value photo products as Christmas gifts in the fourth quarter. This seasonal shift continues, so turnover and the proportion of earnings from the first three quarters are dropping and the fourth quarter is being strengthened more than the other quarters. The company nevertheless raised third-quarter turnover by 4.6 % to EUR 121.8 million. With EBIT at EUR 8.9 million (Q3 2010 EUR 12.3 million), Cewe Color exceeded the expected figure of EUR 7.6 to 8.4 million in the third quarter. The consensus expectation of analysts following up on Cewe Color was thus more than met to the amount of EUR 0.6 million, although the fourth quarter had to absorb significant costs for preparing for Christmas business. Accumulated EBIT was EUR 4.4 million. Now EBIT only needs to grow over that of the fourth quarter in 2010 (EUR 21.8 million) by EUR 1.8 million to EUR 23.6 million to reach the target of EUR 28 to 31 million. In the past five years the increase in EBIT has always been more than EUR 1.8 million. ‘The third quarter puts us in an excellent position for the Christmas season, which is becoming increasingly important and is by far the strongest quarter in terms of photo book sales,’ says Dr. Rolf Hollander, Chairman of the Board of Management of Cewe Color Holding AG.

The dramatic rise in demand for added-value photo products – notably photo calendars, photo greeting cards, CEWE Photo Books – as Christmas gifts at the expense of standard photos after summer holidays continues unabated. In a recent representative survey conducted throughout Germany, the opinion research institute forsa recently ascertained that more than half of the people in Germany (56 %) prefer getting something self-made, such as a photo book or photos, as a gift. Furthermore, 90 % of the respondents said that they were especially pleased to receive a personally designed photo book. ‘We are pleased with the change in consumer behaviour since it raises our annual net income. However, most of our income is now not generated until the fourth quarter,’ says Dr. Hollander. The summer quarter, which used to be the top season and in 2007 still generated as much as 84% of our operative net annual income, ‘only’ accounted for 40% of income in 2010, and its contribution is still declining. On the other hand, in the Christmas quarter, the contribution to earnings rose from 22% in 2007 to 72% in 2010. No end is in sight to this trend. ‘This year we will even generate as much as approx. 90% of our profits in the fourth quarter,’ expects Dr. Hollander.

At 743 million photos, Cewe Color produced even far more photos in the 2011 third quarter than had originally been expected (target corridor 630 to 660 million photos) and achieved an increase of 2 percent over the previous year (Q3 2010: 729 million photos). The CEWE Photo Book contributed most to this increase: in the third quarter the 25.8 % rise in sales to 1.354 million exceeded the target corridor for the full year of +7 % to +12 %. Turnover per photo also increased in the quarterly period under report, by 4.1 % to result in a 6.2 % rise in turnover for photofinishing to EUR 91.9 million, once again confirming the ‘from mass to class’ trend, while retail sales remained stable at EUR 29.9 million.

Enhanced capital efficiency is shown in the 12-month outlook: the return on capital employed (ROCE) rose from 14.1 % (as at 30 September 2010) to a current 17.0 % (as at 30 September 2011). On the one hand the reason for this rise is the reduction of EUR 2.4 million in capital commitment (capital employed as at 30 September 2011: EUR 153.9 million) and on the other hand, more than anything else, it is the improved earnings power of the company. EBIT for the period from the fourth quarter in 2010 to the third quarter in 2011, at EUR 26.2 million, is EUR 4.1 million higher than the comparative value of the same period of the years before. At the same time the capital ratio increased from 42.4 % to 43.0 % in the past twelve months.

Cewe Color has extended its range of different types of paper and different formats even more at the onset of the Christmas season – more than 40 high-quality variants are now available. But it is not only the CEWE Photo Book that is important, greeting cards and photo calendars play a vital role in the fourth quarter too, since they are also popular gift ideas for Christmas.

For the fourth quarter and for the full year of 2012, Cewe Color expects the positive basic trend to be maintained. ‘Not even economic risks can change this. The experience made in the crisis years of 2008 and 2009 has confirmed quite impressively that demand for our products remains robustly positive, even in times of a weak economy, declining consumer confidence and a drop in private consumer spending,’ explained Dr. Hollander. It is particularly in such phases that private matters become more important than ever: ‘And personalised photo products are most important in this case.’ This effect meant that the earning power of the company did not suffer, even in recessions; instead it even tended to benefit.

On the basis of the third quarter, the Board of Management confirms the forecast that turnover will grow by up to 3 % and will amount to up to EUR 460 million in 2011 (target corridor: EUR 447 to 460 million) and that EBIT will be at EUR 28 to 31 million (an increase of up to 10% over the previous year). Despite initial funding for commercial digital printing, the annual net profit is to increase by up to 39%, to EUR 16 to 19 million, and earnings per share are to increase to EUR 2.36 to 2.80 in 2011. It is primarily the Cewe Photo Book and digital added-value products that are to contribute to the increase in sales and earnings. In the coming years, growing sales generated by the offline print service viaprinto.de are to boost weak seasonal phases and hence result in a more uniform capacity utilisation than now. Dr. Hollander: ‘Our commercial online print service viaprinto.de got off to a good start and is steadily winning over an increasing number of enthusiastic customers.’