Editorial
Dear shareholder,
In terms of the overall economy, developments in 2010 were favourable compared with the preceding years, in particular also in Switzerland. Due to the impact of specific factors, the Orell Füssli Group did not benefit from this as much as was hoped for in its main spheres of activity. There were both external and internal reasons for this. The task facing the Board of Directors and the Executive Board is to analyse these carefully and initiate appropriate corrective measures.
In the context of a SWOT analysis launched by Michel Kunz, who took office as CEO in mid-year, weaknesses were identified and process and cost improvements initiated. A start has been made on refining strategic plans to focus on realistic market opportunities while exploiting our own strengths, but this process is not yet complete. Unfortunately, during this exercise we had to recognise that earlier efforts in this direction had not had the desired success. At the same time evidence emerged of considerable potential for improvement in terms of earnings and costs, which is to be exploited this year and next.
How did the business environment look in our main fields of activity in 2010? Intense price competition is a dominant feature of the international market for banknote printing. Orell Füssli had to respond to this with further cost-cutting programmes, especially since the trends in the euro and dollar exchange rates are exerting additional pressure on our competitive position. As already reported earlier, publication of the new Swiss banknotes has been postponed by at least two years. This made 2010 an interim year like the previous year, albeit cushioned by a reprint of the 8th issue of Swiss banknotes currently in circulation. Orell Füssli expects production of the new Swiss banknotes to commence towards the end of 2011. However, this will not be reflected in earnings until the following year.
In the industrial sector, business at Atlantic Zeiser has recovered, but not yet to the extent seen in other sectors of the capital goods industry. Excluding extraordinary depreciation charges, EBIT would at least have been positive, amounting to a substantial improvement compared with the previous year. Interesting new applications in digital printing make the outlook for 2011 much more positive than it was just a year ago.
Despite stable and healthy consumer demand in Switzerland, book retailing struggled in face of a downward trend. Sales expectations were dashed as a result of the increasing shift of book sales to the price-sensitive Internet, the growing competition to the printed book from electronic media, and price reductions averaging 5% over the year, not least due to the erosion in the euro exchange rate. Nevertheless, improvements on the cost side again resulted in increased profitability at the operating level. Profits could even have been higher if extraordinary costs had not been incurred due to adjustments in selling space.
The Board of Directors has decided to change from IFRS to Swiss GAAP FER reporting standards for presenting its accounts with effect from 2011. The decisive factor behind this move is the continuous growth in the number of new regulations, which increase the effort involved for the company without bringing any additional benefits for the shareholders or the company. On the contrary, the increasing complexity of the IFRS regulatory framework adversely affects transparency for the shareholders of a company of Orell Füssli’s size. Despite the reduction in in-house effort, the transparency and degree of detail of reporting under the new standards is unlikely to suffer. The Board of Directors and group management will ensure this. The outcome of this change will be the transfer of the share listing from the Main Standard section of the SIX Swiss Exchange to the Domestic Standard (local caps) section. In our estimation this will have no influence on the share price and the company’s access to the capital market.
The Board of Directors and the Executive Board are not satisfied with the results achieved, even if external factors had a significant impact on the disappointing course of business in the individual divisions. We shall spare no effort to exploit opportunities effectively and eliminate weaknesses. Besides the action already referred to, this also includes the more rapid introduction of new products on the market as well as additional personnel and further training at management level. The organisation and staffing of key functions need to be adapted to growing demands for flexibility and sustainable leadership. We took initial steps to implement this in the past year. The assumption of the post of CEO by Michel Kunz in mid-2010 should make a major contribution.
Orell Füssli’s very sound balance sheet structure enables it to pursue growth through acquisition. In addition to active management of the portfolio of business units, this also includes tactical acquisitions, such as the purchase of software company SOFHA GmbH or the acquisition of the assets of Böwe Cardtec in the past year. These moves were aimed at complementing the Atlantic Zeiser Group’s in-house portfolio of products and services and enhancing technical expertise in specific areas. The Board of Directors aims to retain its financial targets, i.e. 10% annual sales growth and 15% overall return on capital (RONA). After adjustment for changes in the scope of consolidation and taking exchange rate movements into account, sales growth in the year under review was 9%, while RONA was well below target at 7.1%. The 41% increase in cash flow from operations based on internal assessment criteria reflects the operational improvements achieved in the past year. The Board of Directors is sure that the steps initiated in 2010 will lead the way back to our customary earnings performance. We are also counting on firm demand for banknotes, a growing need for individualised printing for all kinds of products and packaging, and also on the fact that technological change in print media offers opportunities as well as risks.
In line with the dividend policy pursued to date, the Board of Directors will propose to the annual general meeting that an unchanged dividend of CHF 2.50 per share should be paid. The rejuvenation of the Board of Directors which has already been initiated is continuing. Dr. Rudolf W. Hug and Dr. Rudolf Rentsch will retire in compliance with term limits. We wish to thank them for their valuable support and cooperative participation over many years. Dewet Moser, Gonpo Tsering, Andreas S. Wetter and Dieter Widmer will be proposed to succeed them at the annual general meeting on 10 May 2011. The number of directors is being increased with a view to ensuring continuity and also in response to the wishes of major shareholders that this body should be strengthened.
We also take this opportunity of thanking our employees for their loyal cooperation and their untiring efforts. Thanks also to our customers and shareholders for the confidence they show in our company, its directors and officers.
Zurich, April 2011
Dr. Klaus Oesch
Michel Kunz
Chairman of the Board of Directors
CEO
