Business update Q3 2012


Introduction
In the Netherlands and throughout western Europe, the graphics market remains under continuing pressure. In the first three quarters of 2012, the volume of paper printed was 12% lower than the previous year, while web offset volume was down by 6%. We can also see the effects of a slowing economy in those markets that are relatively sensitive to economic conditions, such as Marketing Communications and our sheetfed offset plants. Productions are being downsized or even postponed.

In Print Productions we are still dealing with continuing overcapacity and falling volumes, which we have been seeing for years. Our response to this shift involves a structural reduction of cost price, improving capacity management and shortening manufacturing times. To this end, in the summer we started the improvement programme called 'Faster, Better, Higher'. The programme projects have all now started up and we expect to be able to reap their harvest in the coming 18 months.

Results Q3 2012
Compared to 2011, the volume of paper printed by Roto Smeets Group fell slightly less rapidly than the market average, as indicated above. The volume shrank in both rotogravure and offset in the first three quarters by 9% and 3%, respectively. As a result, the result was lower than in the corresponding period in 2011. We were able to compensate part of the effect of the decreased volume thanks to the cost cuttings introduced last year. 

Financial position
Debt at the end of Q3 was at virtually the same level as at the end of the half year. Debt dropped by 9% compared to year end 2011.  Our cash flow position is such that we are able once again to take full advantage of any discounts on offers, particularly by the paper industry.

Significant events, Q3

Print Productions
The  market
Future prospects in this market force us to adapt continuously. Continuing overcapacity exerts constant pressure on prices, which is now being reinforced as we see major groups of customers, such as publishers, cutting volumes in the face of declining results. The domestic scene is dominated by a series of bankruptcies, mainly among smaller printing firms, but despite this, too much capacity remains available. Abroad we are seeing a number of market parties getting into increasingly serious difficulty. Capacity is disappearing thanks to closures,  but volumes are being absorbed by the remaining businesses in the same printing group, so nothing is being released to the market.  

 'Faster, Better, Higher' status report
The improvement programme 'Faster, Better, Higher' started up in this quarter. The projects in the programme are planned to lead to substantial cost savings and improvements in productivity, especially in Roto Smeets. Shorter manufacturing times, improved added value, and greater productivity will make the business more competitive.

One of the first projects to be tackled under the programme is a change to the organisational structure at the Roto Smeets plants, the objective being to draw responsibility further down into the organisation, cut the number of management layers, and reduce a number of incidental functions. This means that the Managing Directors' posts at the individual plants were scrapped as of 1 October, to be replaced by a central management team led by a single Managing Director, which has now been installed. This team will give strategic leadership to the five production plants in the cluster, while the local plant teams will steer their own organisation tactically and operationally.
The goal is to have the organisation run as efficiently as possible, with decisive, rapid decision making, attuned to customers' needs in a rapidly changing market. We intend to make internal announcements of further appointments at strategic, tactical and operational level in November.

A number of working groups have been started up in the Production and Technology product group to meet our productivity improvement and cost saving targets.  

Technique
Implementation of the new ERP (Enterprise Resource Planning) system in Technique, as announced in May, is running exactly on schedule. The project involves the installation of a management information system in all of the Group's Print Productions plants to replace the three systems governing management information, production control / data collection, and logistics. The various modules are currently being installed in phases. It is expected that the system will be operational in all areas of the Business Line in mid-2013.

Marketing Communications
MediaPartners Group has had an eventful year, dominated by a major takeover and uncertainty about the future among the clients.

Early in the summer, after intense negotiations with IPG, vdbj_ was added to the MediaPartners Group. The takeover gained a great deal of attention in the media. MediaPartners Group and vdbj_ are the founders of the customer media industry in the Netherlands and have been competitors right from the start. The Bloemendaal bureau has an impressive portfolio, including such clients as Esprit, Mediq, Rabobank, Randstad and UWV.

With the proviso of works council approval, management has resolved that vdbj_ will be integrated into the MediaPartners Group. Both brands will be actively marketed in the future. As from mid-December, the combined business will be located in Amstelveen.

vdbj_ is performing as expected. This also holds for the synergy predicted when the takeover was being contemplated. It is satisfying to see that ad hoc teams are currently sealing the deal after their first pitches.

At the end of 2011 MediaPartners Group in Amstelveen lost a number of clients and orders as the result of major cost cutting exercises. MediaPartners Belgium started 2012 in a stable position, but they were affected by a pitch for the largest client, Unilever, which they failed to win. The added value realised by MediaPartners in 2012 will be virtually the same as that of 2011, which was a record year, mainly thanks to expansion among existing clients and, to a lesser degree, work for new ones.

The steep increase in the amount of work in 2011 caused a structural rise in staffing costs in 2012. We now know that savings will once again have to be made among our major clients, including KPN and PostNL. This will require some adjustment, the effects of which will only become apparent after some delay. The business result will be below that of 2011 for that reason.

Miscellaneous
The well-attended annual shareholders' visit this year was to X-Media Solutions in Doetinchem. X-Media Solutions is a Senefelder Misset business unit. As a magazine printer with more than 135 years' experience in the printed presentation of content, it was a logical step to offer publishers support with the careful release of their content with cross-media techniques, which is why the X-Media Solutions business unit was set up in 2010.

Roto Smeets Group N.V. scored 164 points in the Transparency Benchmark 2012. This is 26 points more than last year (2011: 143). As things stand, a score of 169 would put Roto Smeets Group N.V. 36th on the Transparency Ladder. The final score on the Transparency Benchmark 2012 will be announced on 22 November.

The Transparency Benchmark is a scheme run by the Ministry of Economic Affairs, Agriculture and Innovation to promote transparency in the reporting of  corporate social affairs in the Netherlands. Part of the scheme involves an annual test of Holland's 500 biggest companies, as well as listed businesses, universities, state organizations, and voluntary  participants.

Prospects
The market conditions described above will not improve materially in Q4.  Roto Smeets Group therefore expects that the 2012 result will be sharply lower than the 2011 figure.

Financial calendar 2012:
Annual accounts 2012 published 21 March 2013
Annual report 2012  3 April 2013
General Shareholders' Meeting 15 May 2013
Business update Q1 2013   15 May 2013
Half-year figures 2013 published 22 August 2013
Business update Q3 2013    7 November 2013

Roto Smeets Group NV
Management Board

Deventer, 8 November 2012

For further information please contact:
Drs J.A. de Haas MBA, CEO
L.M. van Gelder, Director Financial Affairs

Tel.                   +31 570-69 49 05

This is an interim announcement as provided under Article 5:25e of the Financial Supervision Act [Wet op het Financieel Toezicht].





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