DATA Group Ltd. announces fourth quarter and year end results for 2013

HIGHLIGHTS

Q4 2013

• Fourth quarter 2013 ("Q4") Revenues of $82.1 million, Q4 Gross Profit of $20.9 million and Q4 Net Loss of $22.9 million (includes a Q4 restructuring charge of $0.4 million and a Q4 non-cash impairment of goodwill charge of $25.0 million)
• Q4 Adjusted EBITDA of $8.1 million (See Table 2 and "Non-GAAP Measures" below)

2013

• 2013 ("YTD") Revenues of $317.0 million, YTD Gross Profit of $80.1 million and YTD Net Loss of $45.8 million (includes a YTD restructuring charge of $7.0 million and a YTD non-cash impairment of goodwill charge of $44.0 million)
• YTD Adjusted EBITDA of $25.6 million (See Table 2 and "Non-GAAP Measures" below)

BRAMPTON, ON, March 6, 2014 /CNW/ - DATA Group Ltd. (TSX: DGI) ("DATA Group") announced its consolidated financial and operating results for the fourth quarter and the year ended December 31, 2013.

DATA Group continues to make progress on our Transformation Plan.  We remain focused on creating long-term enterprise value appreciation for our shareholders.  In 2013 we reduced our costs by $13.0 million on an annualized basis, generated $11.3 million in revenues from the selected growth areas management has targeted and reduced debt by $4.5 million.  Our net loss in the fourth quarter and in 2013 was primarily due to non-cash goodwill impairment charges and the restructuring expenses associated with our cost reduction initiatives.

Why is a Transformation Plan Required?

Portions of our core print business, which continues to generate a significant portion of our revenues, face increased competitive pressures and unprecedented change with the shift towards digital communications technologies.  These factors adversely impacted our financial results for 2013.  In response to these market driven forces, we are transforming our business to reposition it for sustained profit growth by:

• continuing to significantly reduce our costs
• reducing our indebtedness
• stabilizing our revenues

Cost Reduction

In 2013, DATA Group began a comprehensive, three-year cost reduction program.  During the year, we closed three production sites, downsized two others, simplified our organizational structure, centralized a number of functions, reduced our workforce by 145 staff (8%) and renegotiated a number of raw material input costs, resulting in $13.0 million in annualized savings.  We are committed to this program and are continuing our efforts, including engaging a major consulting firm to assist in identifying and acting on additional cost savings opportunities for 2014 and beyond.

Debt Reduction

We reduced our debt by $4.5 million in 2013.  DATA Group intends to accelerate our rate of debt reduction in 2014 and has reduced debt by $2.0 million year-to-date.

Revenue Stabilization

Our strategy in 2014 is to stabilize our revenue.  We will achieve this by investing selectively in new talent, focusing on winning market share in our traditional print business and prudently investing in growth capabilities.  For example, since the third quarter of 2013 we have made a number of changes in our sales management and executive teams, and we have invested in our direct mail and in-store retail signage capabilities.  Our digital services, such as e-marketing and document scanning, will be closely bundled with our print offerings to increase the value we provide to our customers and increase the contribution these services are making to our overall revenue and profitability.  See our web site; www.datagroup.ca for case studies of how our services are helping clients.

RESULTS OF OPERATIONS

All financial information in this press release is presented in Canadian dollars and in accordance with generally accepted accounting principles ("GAAP") measured under International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") for publicly accountable entities, unless otherwise noted.  Financial figures presented prior to January 1, 2012 are those of The DATA Group Income Fund (the "Fund"), the predecessor to DATA Group Ltd.  In order to simplify our corporate structure and generate operating efficiencies, we completed an internal reorganization on January 1, 2014.  Pursuant to the reorganization, DATA Group Inc. amalgamated with its Canadian subsidiaries to form a new corporation called "DATA Group Ltd.".  The reorganization did not have any significant effect on our business and operations, which are now carried on through DATA Group Ltd. and its US subsidiary.

Table 1  The following table sets out selected historical consolidated financial information for the periods noted.

Table 2  The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods noted.  See "Non-GAAP Measures".

Revenues
For the quarter ended December 31, 2013, DATA Group recorded revenues of $82.1 million, a decrease of $4.8 million or 5.5% compared with the same period in 2012.  The decrease, before intersegment revenues, was the result of a $4.6 million decrease in the DATA East and West segment and a $0.2 million decrease in the Multiple Pakfold segment, respectively.  For the year ended December 31, 2013, DATA Group recorded revenues of $317.0 million, a decrease of $19.4 million or 5.8% compared with the same period in 2012.  The decrease, before intersegment revenues, was the result of an $18.7 million decrease in the DATA East and West segment and a $0.7 million decrease in the Multiple Pakfold segment, respectively.  The decrease in revenues in the DATA EAST and West segment was primarily due to competitive activity which resulted in the loss of orders from existing customers and the continued decline in demand for traditional printed products, including business forms, due to the increased use of digitally-based replacement products.  DATA Group generated approximately $11.3 million in revenues from selected growth areas the Corporation has targeted and the segment continued to experience revenue gains from new business in its traditional print business.  Revenues were also adversely affected by aggressive pricing by DATA Group's competitors supplying similar products and services.  The decrease in revenues in the Multiple Pakfold segment was attributable to aggressive pricing by competitors, continued declines in sales of traditional business forms and orders in 2012 which did not repeat in 2013.

Cost of Revenues and Gross Profit
For the quarter ended December 31, 2013, cost of revenues decreased to $61.3 million from $63.7 million for the same period in 2012.  Gross profit for the quarter ended December 31, 2013 was $20.9 million, which represented a decrease of $2.3 million or 9.8% from $23.2 million for the same period in 2012.  The decrease in gross profit for the quarter ended December 31, 2013 was attributable to gross profit decreases of $2.2 million in the DATA East and West segment and of $0.1 million in the Multiple Pakfold segment, respectively.  Gross profit as a percentage of revenues decreased to 25.4% for the quarter ended December 31, 2013 compared to 26.7% for the same period in 2012.  For the year ended December 31, 2013, cost of revenues decreased to $236.9 million from $249.1 million for the same period in 2012.  Gross profit for the year ended December 31, 2013 was $80.1 million, which represented a decrease of $7.1 million or 8.1% from $87.2 million for the same period in 2012.  The decrease in gross profit for the year ended December 31, 2013 was attributable to a gross profit decrease of $6.9 million in the DATA East and West segment and a gross profit decrease of $0.2 million in the Multiple Pakfold segment.  Gross profit as a percentage of revenues decreased to 25.3% for the year ended December 31, 2013 compared to 25.9% for the same period in 2012.  The decrease in gross profit was attributable to lower revenues and was partially offset by cost savings in each segment.  These cost savings included headcount reductions, the closure and downsizing of certain manufacturing locations and warehouses, and the renegotiation of agreements for a number of raw material input costs.

Selling, General and Administrative Expenses and Restructuring Expenses
Selling, general and administrative ("SG&A") expenses, excluding amortization of intangible assets, for the quarter ended December 31, 2013 decreased $1.3 million or 8.4% to $14.2 million compared to $15.5 million in the same period in 2012.  As a percentage of revenues, these costs were 17.3% of revenues for the quarter ended December 31, 2013 compared to 17.8% of revenues for the same period in 2012.  For the year ended December 31, 2012, DATA Group incurred $0.7 million of severance expenses. Severance costs for the year ended December 31, 2012 were included in SG&A and were related to DATA Group's on-going productivity improvements and cost reduction initiatives.  SG&A expenses, excluding amortization of intangible assets, for the year ended December 31, 2013 decreased $4.1 million or 6.5% to $59.8 million compared to $63.9 million for the same period of 2012.  As a percentage of revenues, these costs were 18.9% and 19.0% of revenues for the years ended December 31, 2013 and 2012, respectively.  The decrease in SG&A expenses for the quarter ended and year ended December 31, 2013 was attributable to the benefits realized from cost saving initiatives implemented in 2012 and 2013 which included simplifying its organization structure and centralizing a number of functions. For the quarter ended and year ended December 31, 2013, DATA Group incurred restructuring expenses related to headcount reductions, the closure and downsizing of certain manufacturing locations and warehouses, and lease exit charges of $0.4 million and $7.0 million, respectively, as part of its 2013 restructuring initiatives.  The restructuring initiatives included a number of changes in DATA Group's sales management and executive teams, closing facilities in Brockville, Ontario and Anjou, Québec, downsizing two other production facilities and transferring the operations of The Fulfilment Solutions Advantage Inc. from Markham, Ontario to DATA Group's existing facility in Mississauga, Ontario.

Impairment of Goodwill
During the fourth quarter of 2013, DATA Group performed its annual review for impairment of goodwill by comparing the fair value of each cash generating unit ("CGU") to the CGU's carrying value.  DATA Group determined the fair value of each CGU by discounting expected future cash flows in accordance with recognized valuation methods.  The process of determining those fair values required DATA Group to make a number of estimates and assumptions such as projected future revenues, costs of revenues, operating margins, market conditions well into the future, and discount rates.  As a result of that review and market indicators, including the trading price of DATA Group's common shares, DATA Group concluded that the fair value of its DATA East and West CGU was less than its carrying value.  Accordingly, DATA Group recognized an impairment of goodwill charge of $25.0 million related to the DATA East and West CGU during the fourth quarter of 2013.  During the third quarter of 2013, market indicators, including the trading price of DATA Group's common shares and changes in revenue trends and forecasted profits indicated that DATA Group's assets may be impaired.  As a result of this new information, DATA Group performed an impairment analysis by comparing the fair value of each cash CGU to the CGU's carrying value.  As a result of that review and market indicators, including the trading price of DATA Group's common shares, DATA Group concluded that the fair value of its DATA East and West CGU was less than its carrying value.  Accordingly, DATA Group recognized an impairment of goodwill charge of $19.0 million related to the DATA East and West CGU during the third quarter of 2013.

During the fourth quarter of 2012, DATA Group performed its annual review for impairment of goodwill and concluded that the fair value of its DATA East and West CGU was less than its carrying value.  Accordingly, DATA Group recognized an impairment of goodwill charge of $44.0 million related to the DATA East and West CGU in 2012.

Gain On Settlement of Pension Plan and Corporate Conversion Costs
During the year ended December 31, 2012, DATA Group incurred total professional fees of $0.1 million related to the conversion of the Fund to a corporation on January 1, 2012 and recorded a gain of $0.2 million on the settlement of a pension plan related to the over contribution to the benefit settlement upon finalizing the wind-up of a pension plan.

Adjusted EBITDA
For the quarter ended December 31, 2013, Adjusted EBITDA was $8.1 million, or 9.8% of revenues.  Adjusted EBITDA for the quarter ended December 31, 2013 decreased $1.0 million or 11.3% from the same period in the prior year and the Adjusted EBITDA margin for the quarter, as a percentage of revenues, decreased from 10.5% of revenues in 2012 to 9.8% of revenues in 2013.  Adjusted EBITDA for the year ended December 31, 2013 was $25.6 million, or 8.1% of revenues. Adjusted EBITDA for the year ended December 31, 2013 decreased $3.4 million or 11.6% from the same period in the prior year and the Adjusted EBITDA margin for the year, as a percentage of revenues, decreased from 8.6% of revenues in 2012 to 8.1% of revenues in 2013.  The decrease in Adjusted EBITDA for the quarter ended and the year ended December 31, 2013 was attributable to the continued investment in DATA Group's growth strategy and a decline in revenues, and was partially offset by cost savings realized as a result of its restructuring initiatives.

Interest Expense
Interest expense on long-term debt outstanding under DATA Group's credit facilities, DATA Group's outstanding $45.0 million aggregate principal amount of 6.00% Convertible Unsecured Subordinated Debentures (the "6.00% Convertible Debentures"), certain unfavourable lease obligations related to closed facilities and DATA Group's employee benefit plans was $1.7 million for the three months ended December 31, 2013 compared to $1.6 million for the same period in 2012, and was $6.7 million for each of the years ended December 31, 2013 and 2012.

Income Taxes
DATA Group reported a loss before income taxes of $22.1 million, a current income tax expense of $1.1 million and a deferred income tax recovery of $0.3 million for the three months ended December 31, 2013 compared to a loss before income taxes of $40.2 million, a current income tax expense of $1.5 million and a deferred income tax expense of $0.1 million for the three months ended December 31, 2012.  DATA Group reported a loss before income taxes of $46.4 million, a current income tax expense of $2.9 million and a deferred income tax recovery of $3.4 million for the year ended December 31, 2013 compared to a loss before income taxes of $37.1 million, a current income tax expense of $4.2 million and a deferred income tax recovery of $3.8 million for the year ended December 31, 2012.  The current tax expense was primarily related to the income tax payable on DATA Group's estimated taxable income for the years ended December 31, 2013 and 2012, respectively.  The deferred income tax recovery was due to a change in estimates of future reversals of temporary differences and new temporary differences that arose during the years ended December 31, 2013 and 2012.  As a result of the conversion, DATA Group re-measured its deferred tax assets and liabilities at the corporate tax rates applicable to corporations, which are lower than the top marginal tax rate for individuals used by the Fund.  In addition, the Fund's conversion option liabilities were reclassified as equity on January 1, 2012 and the associated deferred tax liability was reversed.  As a result of these changes, DATA Group recorded a deferred income tax recovery $1.4 million during the first quarter of 2012.

Net Loss
Net loss for the quarter ended December 31, 2013 was $22.9 million compared to a net loss of $41.7 million for the quarter ended December 31, 2012.  The decrease in comparable profitability for the quarter ended December 31, 2013 was substantially due to lower gross profit as a result of lower revenues, restructuring expenses of $0.4 million and a gain on the settlement of a pension plan that did not re-occur in 2013.  The decrease in profitability was partially offset by cost savings in cost of revenues and SG&A expenses, a smaller goodwill impairment charge in 2013, a smaller current tax expense and a deferred income tax recovery as discussed above.

Net loss for the year ended December 31, 2013 was $45.8 million compared to a net loss of $37.5 million for the year ended December 31, 2012.  The decrease in comparable profitability for the year ended December 31, 2013 was substantially due to lower gross profits as a result of lower revenues, restructuring expenses of $7.0 million incurred in connection with cost reduction initiatives and a gain on the settlement of a pension plan that did not re-occur in 2013.  The decrease in comparable profitability was partially offset by cost savings in cost of revenues and SG&A expenses and a smaller current tax expense as discussed above.

INVESTING ACTIVITIES
Capital expenditures for the three months ended December 31, 2013 of $0.3 million related primarily to maintenance capital expenditures and the consolidation of manufacturing facilities.  For the year ended December 31, 2013, DATA Group incurred capital expenditures of $2.3 million related primarily to maintenance capital expenditures and the consolidation of manufacturing facilities.  These capital expenditures were financed by cash flow from operations.

FINANCING ACTIVITIES
During the quarter and the year ended December 31, 2013, DATA Group repaid $2.0 million and $4.5 million of the principal amount outstanding under its Revolving Bank Facility, respectively.  For the quarter and the year ended December 31, 2013, DATA Group paid aggregate cash dividends $1.8 million and $6.6 million on its common shares, respectively.

About DATA Group Ltd.
DATA Group Ltd. is a managed business communications services company specializing in customized document management and marketing solutions.  DATA Group develops, manufactures, markets and supports integrated web and print-based communications, information management and direct marketing products and services that help its customers reduce costs, increase revenues, maintain brand consistency and simplify their business processes.  DATA Group's expertise and resources enable it to address any document requirement of its customers, from a simple mail-out to an enterprise-wide document management or direct marketing initiative.  We have approximately 1,670 employees working from 35 locations across Canada and the United States to accomplish this.

Additional information relating to DATA Group Ltd. is available on www.datagroup.ca, and in the disclosure documents filed by DATA Group Ltd. on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

FORWARD-LOOKING STATEMENTS
Certain statements in this press release constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of DATA Group, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward-looking statements.  When used in this press release, words such as "may", "would", "could", "will", "expect", "anticipate", "estimate", "believe", "intend", "plan", and other similar expressions are intended to identify forward-looking statements.  These statements reflect DATA Group's current views regarding future events and operating performance, are based on information currently available to DATA Group, and speak only as of the date of this press release.  These forward-looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved.  Many factors could cause the actual results, performance, objectives or achievements of DATA Group to be materially different from any future results, performance, objectives or achievements that may be expressed or implied by such forward-looking statements.  The principal factors, assumptions and risks that DATA Group made or took into account in the preparation of these forward-looking statements include the risk that DATA Group may not be successful in growing its marketing communications business, particularly in light of expected further declines in its traditional print business due to technological changes; the risk that DATA Group will not be successful in reducing its operating costs and long-term debt to the extent anticipated by DATA Group; the risk that DATA Group may not be successful in managing its organic growth; DATA Group's ability to invest in, develop and successfully market new products and services; competition from competitors supplying similar products and services; the risk that sales of DATA Group's printed business documents will decline at a greater rate than anticipated by DATA Group; the impact of economic conditions on DATA Group's businesses; risks associated with acquisitions by DATA Group; increases in the costs of paper and other raw materials used by DATA Group; and DATA Group's ability to maintain relationships with its customers. Additional factors are discussed elsewhere in this press release and under the heading "Risks and Uncertainties" in DATA Group's management's discussion and analysis and in DATA Group's other publicly available disclosure documents, as filed by DATA Group on SEDAR (www.sedar.com).  Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected.  Unless required by applicable securities law, DATA Group does not intend and does not assume any obligation to update these forward-looking statements.

NON-GAAP MEASURES
This press release includes certain non-GAAP measures as supplementary information. When used in this press release, EBITDA means earnings before interest and finance costs, taxes, depreciation and amortization.  Adjusted EBITDA for the three months and year ended December 31, 2013 means EBITDA adjusted for restructuring expenses and a goodwill impairment charge.  Adjusted EBITDA for the three months ended December 31, 2012 means EBITDA adjusted for a goodwill impairment charge.  Adjusted EBITDA for the year ended December 31, 2012 means EBITDA adjusted for corporate conversion costs and a goodwill impairment charge.  DATA Group believes that, in addition to net income (loss), EBITDA and Adjusted EBITDA are useful supplemental measures in evaluating the performance of DATA Group and its predecessors.  EBITDA and Adjusted EBITDA are not earnings measures recognized by IFRS and do not have any standardized meanings prescribed by IFRS.  Therefore, EBITDA and Adjusted EBITDA are unlikely to be comparable to similar measures presented by other issuers.

Investors are cautioned that neither EBITDA nor Adjusted EBITDA should be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of DATA Group's performance.  For a reconciliation of net income (loss) to Adjusted EBITDA, see Table 2 above.

SOURCE DATA Group Ltd.