• Machinery & Plant Engineering: typical seasonal weakness
• Positive outlook
The first quarter 2007/08
The HIRSCH Servo Group reports an increase in sales and a decrease in operating profit (EBIT) for EPS Processing and a weak start albeit typical for the season for Machinery and Plant Engineering during the first quarter. Seasonal fluctuations in the Machinery and Plant Engineering business segment were also affected by the world’s largest plastics trade show, which is held every three years in October. The profit on ordinary activities (POA) dropped in total to minus 0.57 MEUR (previous year: 1.27 MEUR), although sales rose 6% to 23.1 MEUR (PY: 21.9 MEUR).
In the primary business segment EPS Processing, sales increased organically by around 20% in both divisions (Packaging and Insulation). The rise in sales in the Packaging division reflects general market trends, as electronics and domestic appliance manufacturers continue to expand capacity in Eastern Europe. Contrary to the general declining trends in the industry, the Insulation division succeeded in increasing sales.
Developments in EPS raw material prices were completely atypical. Although in recent years prices have tended to rise from July to November, this year they have continued to fall successively since January 2007 and are now down to around 25% of last year’s level. As a result, increasing the raw material inventories in June did not contribute to operating profit as expected. Whether and to what extent these price trends will have a negative impact on operating profit in the second quarter 2007/08 has yet to be seen. If prices continue to drop, a considerable backlash in the price of EPS can be anticipated for 2008.
The EBIT was down 17% to 1.18 MEUR (PY: 1.42 MEUR). Higher costs, especially in human resources and energy, had a negative effect on the results, which can only be partially offset with price increases as of January 2008. The POA fell to 0.18 MEUR due to exchange rate losses and higher interest paid (PY: 1.25 MEUR), despite sales in the primary business segment rising to 20.4 MEUR (PY: 16.9 MEUR).
With sales slumping 46%, the Machinery and Plant Engineering business segment got off to an extremely poor start. The first quarter, typically a weak season, was exacerbated by the K trade show in Düsseldorf in October, as customers waited before placing orders. Given the order book situation and project preparations, capacity utilization is expected to be good for the remaining three quarters. The EBIT fell to minus 0.57 MEUR (PY: 0.09 MEUR). The POA was down to minus 0.71 MEUR (PY: 0.02 MEUR), while sales dropped to 2.7 MEUR (PY: 5.0 MEUR).
Falling virtually proportionally to the POA, the annual net income was minus 0.4 MEUR (PY: 1.0 MEUR) causing the balance sheet profit to drop to 14.9 MEUR (June 30, 2007: 15.3 MEUR). The equity ratio was down 24.7% (June 30, 2007: 26.1%) as a result of the disproportionately low POA for the period and the increased stocks of raw material worth around 5 MEUR to prevent supply shortfalls.
On account of the lower earnings, the cash flow from operating activities dropped to minus 4.1 MEUR.
At the reporting date September 30, 2007, the HIRSCH Servo Group employed 718 people (PY: 564). The annual average rose to 704 (PY: 538 people) with the average headcount in EPS Processing increasing by 138 to 539 (PY: 401).
In the period under review, the HIRSCH Servo Group invested 3.3 MEUR (PY: 3.1 MEUR). Here the majority was spent in Slovakia, Poland and in Machinery and Plant Engineering.
Changes did not occur in the contingent liabilities and contingent claims shown in the 2006/07 annual report.
The quarterly report meets the requirements of IAS 34. In addition, the same accounting practices and valuation methods were used as for the 2006/07 annual report.
No events of particular significance occurred after the reporting date that would have led to a different portrayal of the net assets, financial position and results of operations. A fire at the Wroclaw plant in Poland however destroyed a warehouse on October 18, 2007. The insurance company is still reviewing the claim, but it is currently assumed that the damage will be covered by existing policies.
The quarterly report was not checked by the auditor.
Profit and sales trends for the business segments:
|
|
1st Quarter 2006/07 |
1st Quarter 2007/08 |
Change in % |
|
POA |
1.27 |
-0.57 |
- |
|
EPS Processing |
1.25 |
0.18 |
-86 |
|
Machinery and Plant Engineering |
0.02 |
-0.71 |
- |
|
Other activities |
- |
-0.04 |
- |
|
Sales |
21.9 |
23.1 |
+6 |
|
EPS Processing |
16.9 |
20.4 |
+21 |
|
Machinery and Plant Engineering |
5.0 |
2.7 |
-46 |
|
Other activities |
- |
- |
- |
|
Employees (annual average) |
538 |
704 |
+31 |
Outlook
Management confirms the forecast for fiscal 2007/08 with a POA of 6.5 MEUR. The improvement in POA should be achieved with sales growth in EPS Processing as a result of the investments in expansion already carried out and the new developments presented in 2006/07 taking effect.
A rise in earnings of at least ten percent is expected for 2008/09, as the HIRSCH Servo Group will continue to implement its growth strategy systematically. New developments, such as the HIRSCH Pallet, which could be produced in larger numbers and sold more profitably if required are also in the pipeline.
The next date on the financial calendar is February 28, 2008 when the results for the first half of 2007/08 will be announced.
*The HIRSCH Servo Group is the EPS specialist on the Vienna Stock Exchange with manufacturing facilities in Austria, Hungary, Poland, Slovakia, Italy and Romania. EPS products (EPS stands for expandable polystyrene and is better known under the brand name of Porozell®) support a variety of functions, including energy savings, as well as sustainable and eco-friendly growth. Their wide-ranging applications cover packaging, shape-molded parts, building insulation, modular boards for underfloor heating, construction blocks and Thermozell® lightweight concrete products.
For further information, please contact Michaela Promberger, Tel: +43 4277 2211-312,
Fax: +43 4277 2211-370, E-mail: michaela.promberger@hirsch-gruppe.com,
www.hirsch-gruppe.com