Walstead: results reflect relentless focus on core competencies

Scanlon: we cannot stimulate demand if paper is too expensive
Scanlon: we cannot stimulate demand if paper is too expensive

Walstead chairman Mark Scanlon has described the group as being “well and truly stress-tested” last year as it tackled unprecedented increases in input costs – as well as the lingering effects of the pandemic.

In a statement about Walstead Group’s performance in the financial year ending 31 December 2021, Scanlon said that 2021 had, like 2020, been a year like no other. 

“Whilst the virus was with us most of the year and, mercifully, petered out, it was joined in the latter part by unprecedented increases in the cost of energy, paper and other raw materials, our largest items of expenditure,” he stated. 

“My overriding feeling about the last two years is that Walstead has been well and truly stress-tested by remarkable dynamics that could not have been foreseen or planned for.”

Gross revenue in the 12 months to 31 December 2021 was €546.4m (£457m), down 2.63% on the prior year. Net sales (excluding paper) were up 4.9% at €355m. 

Adjusted EBITDA slipped from €43m to €42m. 

The adjusted pre-tax profit was €7.9m (2020: €1.5m).

He said the business had survived “by a combination of hard work, taking tough decisions, and being supported by our customers and staff”. 

In the face of soaring prices for electricity and gas in Q3, Scanlon said the group’s only option had been to ask its customers to contribute to the increased costs, in order to avoid “a significant and unsustainable loss”.

“I am relieved to report that due to the understanding of our loyal customers, we were able to mitigate a significant proportion of these increases in the period. I would like to sincerely thank them for staying with us. Fortunately, they recognised that this situation was out of our control and affecting other printers and many other industries, too.”

Walstead’s central European businesses also suffered substantial increases in energy costs and had to adopt the same cost mitigation strategy as that in the UK. 

“Whilst we all hope these costs return to pre-2021 levels it is unlikely they will do so in the foreseeable future and as a result I believe buyers of printed media should factor these current costs into their budgets,” he stated. 

The scarce supply and soaring cost of paper also had an impact. Scanlon said that by September 2021 average prices had increased by more than 60% since the start of the year, “and by the end of the year they had doubled”.

“Whilst printers tend to charge their customers the prevailing market price for paper and thus should recover any price adjustment, we cannot stimulate demand if this core raw material, which can account for up to 70% of the printed product, is too expensive,” he noted. 

“Buyers either transfer their marketing to alternative media or reduce their budgets; none of which propagate growth for our industry.”

He said the business had deliberately avoided making any acquisitions, and described some potential targets as being “artificially sustained by Covid-19-related state subsidies and other economic measures”.

“Paying absurd, empire-building EBITDA/EV and debt leverage multiples is not for us,” he stated. 

The collapse of UK rival YM Group’s web offset business at the end of March came after the balance sheet date. 

“As with the demise of Polestar in 2016, we waited for this inevitable outcome and have acquired, at an attractive price, a substantial amount of printing and bindery equipment – enough to satisfy the group’s major capex programme for the mid-term,” Scanlon said. 

Walstead has since revived the York Mailing site as Walstead York. 

Scanlon also noted that further industry failures appeared inevitable.

“The emerging increases in interest rates and labour costs will present another significant challenge to our industry (as with others). Consequently, I expect an acceleration in print insolvencies.”

The strike at UPM mills in Finland that ran from January to April “severely exacerbated the ongoing chronic shortage of paper and its high price”. 

Scanlon said that with the dispute resolved, the group expect to see gradual supply improvements for the remainder of this year.

He said that while hoping for the best, it was pragmatic to prepare for the worst. 

“We’ve done well considering what we faced and, indeed, compared to how our competitors fared. It’s down to exceptional management, shrewd financial controls, and a strategy that focuses on our core competencies without deviation.

“I’ve been involved in many businesses and all have had to prepare disaster recovery and continuation plans for their stakeholders, insurers, and customers. But none of these theoretical situations covered a pandemic, energy costs increasing five-fold, core supplies doubling in cost, and all around the same time and in a declining sector.”

Walstead Group’s unaudited gross sales in the first five months of 2022 were up 22% at €257.9m.

“We have been more than usually mindful of our balance sheet at this critical moment, and I am pleased to report that as of 31 May 2022 we had total availability of €72m,” he noted.

The group has operations in the UK, Spain, Poland, Austria, Czech Republic and Slovenia. 

Its overall manufacturing output was 341bn A4 pages last year, down 0.5% on 2020. 

The group’s full results are due to be filed at Companies House by 30 September.