Service Graphics shortfall revealed

Service Graphics owed unsecured creditors more than £7.5m when it went into administration at the beginning of the year.

A report from administrators Allan Graham and Matthew Ingram at Duff & Phelps shows that trade and expense creditors were owed £4.23m, employees were owed nearly £1.2m in statutory redundancy and notice pay, while HMRC was owed almost £1.85m.

Service Graphics went into administration on 19 January. The firm’s sole director was Landry Kouakou. He acquired the business from St Ives along with sister companies SP Group and Tactical Solutions in March 2018, in a £6m deal backed by Sitara Finance. Sitara also provided the invoice discounting facility.

Kouakou had not provided a Statement of Affairs by 11 March when the report was drawn up.

“The joint administrators have granted an extension to time allowed for the director to deliver the SoA and will provide an update in the next report to creditors,” Duff & Phelps stated.

According to the filing Service Graphics had managed to achieve after-tax profits of £612,365 in its final full year of ownership under St Ives to 28 July 2017, up by £283,000 on the prior year.

However, based on management accounts, in the 16 month period to 30 November 2018 the business posted a £1.78m loss on sales of £50.12m.

The administrators’ report stated that falling sales and a high cost base had necessitated a turnaround plan shortly after SelmerBridge acquired the company, but measures taken failed to increase sales and profitability and the company faced cash flow difficulties.

Duff & Phelps was initially approached by Secured Corporate Finance (SCF), described as “the servicer acting for Sitara” last October.

A creditor issued a winding-up petition in December 2018. This was settled and Kouakou then filed a notice of intention to appoint administrators to protect the business from further action.

Although the management accounts show that gross profit had jumped, on an annualised basis, from £9.89m to £17.6m (16 month figure £23.46m), a huge increase in ‘selling expenses’ helped propel the business into the red. Selling expenses almost tripled from £4.77m to the annual equivalent of £13.54m (16 month figure £18.06m).

Employees at the business had previously expressed concerns to PrintWeek about the large fees being charged to the company by Kouakou and his associates, although it’s not clear if these fees were included in the selling expenses figure.

Kouakou had not responded to a request for comment at the time of writing.  

Secured creditor Sitara was owed £728,423 at the appointment date, “subject to accruing interest, charges and termination fees”. The book debt ledger of £4.86m is also pledged to the financier.

This included £849,256 of inter-company debt deemed “uncollectable” after sister company SP Group went into administration last summer.

Duff & Phelps stated that Sitara was unlikely to be repaid in full. The administrators also said that unsecured creditors were unlikely to receive anything beyond any ‘prescribed part’ provision, which is also uncertain due to Sitara’s charges and the costs of the administration.

The report stated that four offers were received for various parts of the Service Graphics operation. Paragon Group’s offer of £850,000 for the firm’s name, intellectual property, and its Glasgow and Skelmersdale sites was the best proposal received, with 126 employees transferring to Paragon as part of the pre-pack sale.

Subsequently, CSM Live paid £225,001 for the equipment, stock and certain IT assets at Chessington, which had been Service Graphics’ largest site. CSM has also been granted a licence to occupy the site for an initial period of three months.

Most of the 163 staff at Chessington were made redundant in January.

Flintshire-based field marketing agency Tactical Solutions is a separate business and continues to trade.

Sitara also backed Kouakou’s previous printing industry venture, the 2012 acquisition of Aylesford Newsprint. It went bust in 2015 leaving more than 230 people out of work and owing unsecured creditors more than £120m