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 MAY 2008 W4 ALERTD&M Reports Record FY2007 Consolidated Results; Consumer AV Segment Struggles Results show striking contrast between consumer and commercial divisions <STRATECON><May 23, 2008>D&M Holdings Inc. released FY2007 results today with consolidated financials showing record revenues, operating profits, and EBITDA (earnings before interest, taxes, interest, depreciation and amortization). However, the consumer AV side of their business struggled with declines in both revenues and profits due to declines in DVD sales, a delay in introduction of new receivers, and a reduction of sales of set stereo in their Asia and Pacific division.
Prominent in their report is the disclosure of a provision for additional tax liability as a result of an audit of the company by the Tokyo Regional Taxation Bureau (TRTB) which has determined that the company can not use tax loss carry-forwards from Marantz after acquiring the company. According to D&M, corporate tax law does not support this decision and they intend to fight the TRTB to get this decision reversed. (See ALERT article from earlier this week “BREAKING NEWS: D&M Lowers FY2007 Profit Forecast 49%.")
Nonetheless, the company booked solid gains overall on an operating basis. Revenue for the year came in at ¥112 billion (just under $1.1 billion at current exchange rates) which was 12% over the ¥100 billion in the previous year and 3% higher than forecast.
Operating profit increased 6% from ¥5.7 billion to ¥6.1 billion (about $59 million). Ordinary profits, however, declined 9.5% to ¥5.1 billion from the previous ¥5.7 billion. EBITDA increased an impressive 21% from ¥8.2 billion to ¥9.9 billion.
Consolidated results clearly benefited from contributions by acquired companies including Calrec and Premium Sound Solutions (from Philips) with the company gaining ¥2.3 billion in operating profit contribution from the combination of operations and the new divisions.
The Consumer AV segment struggled with sales declines from ¥81.9 billion to ¥79 billion. Expenses increased 1% and operating profits declined a significant 6% from ¥4.2 billion to ¥3.9 billion. The company noted three primary factors impacting the consumer side of their operations including: 1) Standard DVD player sales declined faster than anticipated before the company could get their Blu-ray player to market in the fourth quarter; 2) A sales reduction of set stereo in their Asia/Pacific division; and 3) A delay in the introduction of new AV receivers as a result of software issues relative to the inclusion of HDMI version 1.3a.
While the Consumer AV division enjoyed a gross margin gain of .5% from 39.9% to 40.4%, expenses increased 5% from 33.8% to 35.5% resulting in a lower operating margin.
The commercial side of D&M’s business fared better with both sales and profit increases. Revenues increased an impressive 82% from¥18.1 billion to ¥33.1 billion primarily due to their acquisitions, although the company noted that Boston Acoustics sales to Chrysler had decreased due to adverse market conditions.
Gross margins for the commercial division suffered a 7.6% decline from 40.5% to 37.4% which was somewhat minimized as expenses also declined as a percentage of sales from 31.6% to 30.7%.
The geographic breakdown provides a clear indication of the impact of various acquisitions and events. North America showed a significant decline in its impact on overall sales as it went from 44% of sales at ¥44 billion last year to 35% of sales this year with sales of ¥39.3 billion.
Europe, however, thanks in large part to the PSS and Calrec acquisitions, showed an impressive 53% gain in share of overall sales. Sales in Europe went from ¥32.9 billion to ¥49.8 billion.
Asia/Pacific showed a modest decline from ¥23.4 billion to ¥23 billion as a result, the company says, of a decline in set stereo and karoke sales in Japan.
Debt increased from ¥19 billion to ¥25.8 billion as the company financed its acquisitions, however, the company notes that overall debt ratios are still well within their loan covenants.
Looking forward the company forecasts sales and profit increases for their FY2008 (fiscal year ending March 31, 2009). The company says revenues will increase another 3% to ¥115.3 billion with a net income increase of 87% to ¥3.1 billion.
Margin percentages are all expected to increase as the company improves efficiencies as a result of integrating acquired companies.
Consumer AV is expected to grow again in FY2008 from this year’s ¥79 billion to ¥80.5 billion or 2% growth. Commercial AV is expected to do even better with growth of 5% from ¥33 billion to ¥34.8 billion.
Overall, the company is optimistic that acquired companies will offer new growth opportunities to expand their businesses. D&M has targeted three main growth areas: branded automotive AV, branded commercial AV, and emerging markets.
Especially in the case of emerging markets, the company has made several moves in hopes of driving revenues. For example, D&M plans to open an office in Russia during this fiscal year. The company also opened offices or established direct sales relationships in the United Arab Emirates and Taiwan which should continue to gain traction. Finally, the company noted that sales in Latin America expanded 153% in the last fiscal year and they anticipate growth will continue there as well.
And, fundamental to the company’s business model, it continues to seek additional acquisition opportunities.
Says CEO Eric C. Evens, “Overall, our fundamental business model for providing consumers and commercial customers some of the world’s premier branded AV products continues to be proven successful in the marketplace.”
See the full D&M press release on these results here… |
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