St Ives share price jumps on 2011/12 results

Simon Nias
Friday, October 5, 2012

Shares in St Ives have risen by more than 17% in the past week, after the group announced better than expected results on Tuesday (2 October).

St Ives beat the forecast for its underlying pre-tax profit by around £300,000 thanks to a late surge in Olympic work at its exhibition and events print subsidiary Service Graphics.

This counteracted a drop in activity across the group's Marketing Services division during the summer, which chief executive Patrick Martell attributed to "strategic decisions being delayed" as a result of the Olympics.

He said: "We probably got £4-5m of sales reported in the print businesses that we were not expecting, so the Olympics had a late but welcome positive impact on print.

"But as far as the other businesses were concerned, we saw a pause in the marketing services businesses [although] post the Olympics the pipeline to marketing services is very strong.

"The net effect was probably a slight benefit, which is why we came in slightly ahead of the number – the market was at £23.9m and we came in at £24.2m – that was Olympic-driven."

Group revenue for the year to 27 July 2012 came in at £329.5m, up 10.9% on £297.2m in 2011, while operating profit before non-underlying items was £24.5m, compared to last year's £21.3m.

Marketing Services

All of the group revenue and earnings growth was attributable to the Marketing Services division, in which St Ives invested heavily during the year, with three acquisitions totalling some £37.1m.

This included the purchase of Response One Holdings for a total consideration of £18.4m, Pragma Holdings for £4.5m and Incite Marketing Planning for £14.2m.

The group also acquired minority stakes in mobile marketing firm Sponge for £1.5m and ebook business Evolved Group for a further £1.5m.

As a result, Marketing Services revenue grew almost 240% from £14.1m last year to £47.7m, while underlying profit came in at £4m compared with just £450,000 in 2011.

Martell said that the past three years had been about "restructuring and repositioning the business" by dealing with its "structurally challenged print businesses" and simultaneously buying into growth areas.

"We've [now] got a group of companies that is in completely different shape to what it was three years ago and that's as a result of the restructuring and the acquisitions," said Martell.

"Going forward we don't have the management cost and the cash cost of the restructure so now the focus will be on investment in the platform that we've built because we've built a platform for growth."

Martell said that the group was on track in its goal of generating 40% of operating profit from Marketing Services by 2014, although he added that it would need "one or two more acquisitions" to reach that target.

"Pro forma for this year we're at about 25% of operating profit from marketing services," he added. "So we are probably slightly ahead and that assumes that print is a steady state."

However, while St Ives has invested around £1m in additional staff across its Marketing Services segment, it has had to reduce headcount in parts of its Occam data marketing business.

Chief financial officer Matt Armitage said: "The market has changed somewhat in that the requirement for very large database builds we've found has slowed in the current environment.

"Decisions to invest in very large IT projects of that nature have been pushed into the long grass – so it was necessary for us to cut down headcount in [those areas] of the business."

Print Segment

St Ives' Print revenue, across its books, exhibitions and events, point of sale, and direct response divisions, totalled £282.6m (2011: £283.2m), while underlying profit was £20.4m (2011: £20.9m).

Total book production at Clays grew by around half a million, but while the numbers of orders was "up significantly", average print runs were "down significantly", which affected margins. See separate article.

In direct respone, the consolidation of Leeds and Bradford is expected to complete by the end of the calendar year, while the CMC enclosing machine that was under consideration for Leeds is now being installed at Bradford.

Martell added that there was the possibility of "some digital investment" at the Bradford site, but that this would be for efficiency rather than incremental capacity.

Revenue for the direct response division fell from £85.1m to £78.9m although St Ives stressed that the sales mix had changed as a result of the decision to exit the markets for company reports and CD/DVD inserts, which had "significantly improved the financial performance of the business.

In point of sale, revenues at SP Group increased slightly from £85.7m to £88.2m following a number of new customer wins and contract renewals "at acceptable margins". Martell said that while the well-publicised woes of high street retailers had led to increased price pressure it had equally led to increased campaign activity.

Armitage added that the group's customers were primarily grocers and brand owners rather than high street stores.

Finally, in exhibition and events, Service Graphics recorded revenues of £38.2m, up 9.6% on last year's £34.8m following the late boost in Olympic activity and the move to a new modern facility in Chessington.

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