St Ives reports "much improved" start to second half

By Richard Stuart-Turner, Wednesday 14 June 2017

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St Ives has reported an improved performance in its latest trading update.

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CEO Matt Armitage announced St Ives' strategic review in March

The £367.5m-turnover group said the first four months of the second half of its financial year have delivered a “much improved” performance and its expectations for the full year remain unchanged.

Revenue for its Strategic Marketing segment in the period was said to be approximately 12% above the equivalent period in the prior year. Excluding the effects of currency movements, like-for-like revenue growth in the segment was approximately 7%.

The group said it has been encouraged by the segment returning to delivering like-for-like revenue growth and the fact that the operating margin has improved significantly.

Trading conditions in the group’s Marketing Activation segment continue to be very challenging, due largely to the ongoing pressures within the grocery retail sector – the segment's largest single market.

Revenue in the segment was flat in the first four months of the second half, compared to a 3% decline in the first half, but the group said the pressure on operating margin remains intense.

However, it said cost-reduction measures already implemented within the segment are helping to mitigate the margin pressure.

Marketing Activation includes POS and large-format specialists SP Group and Service Graphics as well as field marketing agency Tactical Solutions and print management wing SIMS.

Revenue in St Ives’ Books segment Clays was around 12% ahead of the equivalent period in the prior year for the first four months of the second half, compared to an increase of 15% in the first half. The group said there is continued pressure on operating margin in this segment.

The group said it is continuing to look for opportunities to further strengthen its balance sheet following its recent sale of a Cornish factory occupied by Wyndeham Roche. The £4.2m sale, to a property company, is said to have successfully reduced the group’s debt and created further headroom against its banking covenants.

The company's Peterborough factory – also occupied by Wyndeham – was also put up for sale three months ago. At the same time, St Ives chief executive Matt Armitage announced a strategic review that could result in the disposal of the group's printing operations, which have a turnover of around £220m, though uncertainty over a number of its major contracts could affect these plans.

But the group has said it is continuing to review strategic options for both its Marketing Activation and Books segments and is taking "decisive action" to improve efficiencies and reduce costs in these segments.

It said restructuring measures will still be implemented as planned before the end of the financial year while further reports on the progress of the strategic review will be revealed "in due course".

The board said the group’s balance sheet remains sound and it has the necessary cash flow capabilities to support its investment priorities and to further reduce debt. It remains confident in the strategy currently being pursued and in the long-term growth opportunities open to the group.

St Ives has struggled in recent times. Group sales in the first six-month period of the financial year to 27 January rose by 5% to £195.1m, but the group posted a loss of £26.8m after £36.3m of “adjusting items” including a further hit on the value of its print assets with a £23.9m impairment charge at Marketing Activation and £3m at Books.

The group’s share price has been falling rapidly since the beginning of the year, following a second profits warning, but it was up 32% to 49.5p at the time of writing, having descended to 37.5p yesterday (13 June). The 52-week high was 149.63p.

At the time of writing, St Ives chief executive Matt Armitage had not yet responded to requests for comment.

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