Profit fall for Salmat in half-year results

Salmat suffered a 21.1 per cent drop in profits during the second half of 2005, falling $3.5 million to a level of $13.1 million. Revenue shot up 44.7 per cent to reach $262.4 million, a movement the company attributes to its acquisitions last year of Salesforce and the NSW Government Printer.

Phillip Salter, joint managing director at Salmat, says that in spite of the profit drop the company made significant progress over the period, emphasising its purchase of the NSW Government Printer last April.

“This half has been an important building phase for our company,” says Salter. “During the period we've made significant progress with bedding down two acquisitions and some solid new business wins.

“At the same time we've invested in the systems and infrastructure required to run our enlarged and growing business,” he says.

Salter attributes the company's fall in profits to price competition and the higher costs of its business outsourcing division, as well as to an increase in infrastructure investment over the period.

The targeted media and catalogue division was one of the stronger performers for Salmat, with earnings rising 8.1 per cent to reach $21.4 million.

“This was a good achievement in view of a shortage of print capacity in the printing industry and reflects the increased contribution from non-traditional customers,” says Salter.

The number of advertising catalogues and other items delivered by Salmat during the period grew by 3.9 per cent to reach 2.3 billion. Peter Mattick, joint managing director of Salmat, claims the division is well positioned to gain from a shift from traditional media forms over to new platforms.

“As the Australian and New Zealand leader in targeted advertising catalogue distribution, we expect to continue to benefit from this trend, with volume growth outstripping overall retail advertising spend,” says Mattick.

However, the company's business processing outsourcing division, responsible for printing and distributing bank and credit card statements, suffered a 50 per cent drop in earnings to a level of $4 million.

Mattick attributes the drop to a highly competitive marketplace, and to the company's decision to up the investment in technology and infrastructure and relocate to new premises.

“Our main focus during the period was on refreshing the division's technology and infrastructure to increase productivity and operational capacity,” says Mattick. “These initiatives, together with implementation of new contracts, incurred substantial one-off costs.”

Salmat claims that current price competition will prevent it from investing any further in its catalogue division, and suggests that rationalisation may be on the cards in the near future. It estimates it may take as many as three years for its margins to return to satisfactory levels.