RE:2nd Quarter Results & Conference Call
Data Group confirmed in an e-mail Monday that
" the first stage of the cost reduction initiatives were completed in June (the closing of the Brockville facility and the Anjou facility) so the cost savings from the plant closings will begin to take effect in the second half of 2013. The other initiative of moving our Markham facility (our FSA subsiduary) to our Missisauga location is in process and will be completed in Q3. The cost savings from that initiative will begin to take effect in Q4. These initiatives alone reduce our footprint by over 200,000 square feet"
If we assume the $28 million in cost savings by the end of 2015 is accurate at a rate of $12.1 million annualized , it would be reasonable to assume a total cost savings of $4 million in total Q3 - Q4 2013 which would show up as reduced Cost of Revenue and or SG & A costs. and would improve gross profit year over year in total
Assuming Gross Revenue drops 4% year over year in Q3 and Q4, from that of 2012 and Cost of Revenue continues at a rate of 75%, gross profit over Q3 and Q4 would increase from $42.9 million to $44.1 million in total for the 2 quarters and also improve gross profit in 2013 to $85.6 million from $83.4 million in 2012.
Going forward then approx $3 million per quarter cost savings, $12 million annually in 2014 and another 4% drop in gross revenues from the projected $321 million in 2013 would see gross profits rise from $85.6 million in 2013 to $89.1 million in 2014.
Naturally cash flow will also increase, the dividend would be safe through 2015 even with continued 4% declines in the legacy print business.
In the event Data Group can increase total gross revenues in digital products and services and keep a lid on SG & A costs, net profits will rise in the long term and the share price will rebound significantly.
Given the fact cost of revenues have remained at about 75% over the last 4 years I strongly believe there is room for improvement. Even taking on low margin print business to cover fixed costs should be explored and perhaps would result in obtaining new business from financial institutions rather than just focusing on their existing client base.
This is my analysis based on the facts as I know them and any comments or notification of mathmatical errors would be appreciated.
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