Business Inspection: Make a strong recovery
Thursday, July 23, 2020
In the late noughties, Mark Gray was running a profitable Manchester print business producing educational material, but with the market flagging due to new technological capabilities in schools, Gray was on the lookout to join forces with another print entity in a bid to combine offers and diversify.
Meanwhile Wakefield-based book printer H Charlesworth & Co was producing long-run publications but looking for a way to diversify as it recognised the changing market.
Feeling the two were a perfect fit, Gray, along with his then business partner, bought Charlesworth in September 2010, moved all production for the two entities into the 4,180sqm Wakefield premises and operated Manchester as a sales site.
It wasn’t long, though, until bumps emerged in the road, with the loss of a major customer after six months of new ownership, marking the first of a number of management and financial difficulties.
Turnover took a tumble of around 25%, with overheads outweighing income, leading eventually to the closure of the education business and the Manchester site in 2013, so that all resources could be ploughed into ensuring the success of what’s now called Charlesworth Press.
A full year revealed the extent of the company’s problems and new management and financial processes were implemented in an attempt to revive the flagging company. However, by mid-2015, with problems still destabilising the business the shareholders mooted the possibility of Creditors Voluntary Agreement (CVA).
“We had a good relationship with Close Brothers Asset Finance already, so we naturally went to them with the idea,” explains managing director Gray. “They said they would support a CVA because, despite the debt, the underlying business was strong.”
Gray continues: “We then went to the creditors with a proposal of 100p in the pound, based on consolidating the debt and paying it off over five years. We got over the 75% acceptance needed, so we went with it.”
The CVA arrangement officially started in March 2016 and the whole mentality and shape of the business had to change, according to Gray. The existing managing director left in October of that year with Gray taking the reins and promoting operations manager Lee Hewitt, who’d come on board in 2013, to the role of operations director.
A comprehensive plan was devised, with the help of external accountants Sedulo and HR consultants DLP, for a complete company restructure including not only employees but customers too.
“We had to go through a redundancy programme because the overheads were way too high,” Gray explains.
“Salaries had to be reviewed as there was no structure and they’d been inflated over the years, which meant we weren’t being competitive in the market. We had to reduce the wage bill by 30% and to do that we also had to look at our customers and decide which made business sense and which didn’t.
“It was extremely difficult, but instead of being busy fools, we needed to be more clever about what we were doing,” he adds.
So in January 2017 Charlesworth’s headcount was cut from around 80 to 55, explains Hewitt, who describes the period as a very difficult one.
“The staff, many who’d been here their whole working lives, were like a big family and it seemed like I’d just come in and upset the apple cart,” he says.
Key to navigating the choppy waters was good communication, the pair agree, while openness and honesty were crucial in convincing the staff that their goal truly was the success of the business.
“It was a case of our actions proving that we had the best interests of the business, and therefore their best interests, at heart,” says Gray. “Once we did that and started to share the good news about what was happening and pass on praise from customers, the team took on board what we were saying.”
Traditionally a journal printer along with the trade finishing side of the business, Hammonds Bindery, Charlesworth’s newly reshaped customer and product portfolio focused on personalised children’s book production with publishers Wonderbly, Mrs Wordsmith and Hooray Heroes key to its transformation.
Recognising this market as the key to Charlesworth’s success, Gray and Hewitt quickly saw that investment in new technology was imperative to keep up with growing demand and indeed with the specific requirements of key client Wonderbly, but with the CVA hanging over the business the very notion that they would secure backing was uncertain.
Alongside its B1 Heidelberg Speedmaster, the business was running an HP Indigo 7600 and two HP Indigo 7800 B3 presses but these weren’t able to satisfy new demands.
“During the CVA, Wonderbly were growing very rapidly,” says Gray. “They wanted personalisation on the front covers, which we couldn’t do on the B3 for their size of book. We started to look at HP’s new 12000 B2 press and along with Wonderbly we approached them for support to invest.
He continues: “HP was understandably, due to the CVA, a bit nervous about going down that route but we had numerous meetings along with Wonderbly, we were very open and shared all our figures with them and they understood that the personalisation work was vital to us coming out of the CVA successfully.”
Gray says the stigma of being in a CVA was hard to overcome, but they did and the first of two 12000s was installed in mid-2018, with a second following in October 2019. Overall the business clocked up more than £3m of investment in new equipment over an 18-month period, including finishing kit to remove bottlenecks and increase capacity for its growing personalisation and print-on-demand work.
The drive and focus of the directors was behind Close Brothers’ decision to support Charlesworth to invest, according to the lender’s print division sales director Paul Philbrick.
“Mark and Lee have changed the dynamics of their business and what they produce, they have the right people in place, the operation is far slicker and they now have a global audience. It’s about putting all the pieces of the jigsaw into place, driving forward and finding new opportunities and income streams and that is what they’ve done,” he adds.
Meanwhile, in the midst of this 2018/19 growth and investment period the business was moving at a pace where it needed to and was ready to exit the CVA and with creditors approving the proposal in March last year, Charlesworth exited two years early.
“It’s the first time anyone in print has come out successfully from a CVA in recent times,” Gray asserts. “By doing that and making the right investments, it has shown people we are trying to do things in the right way and also safeguarding for the future.”
Gray says that the practicalities of operating under a CVA were particularly difficult with business having to be done on a cash basis due to suppliers being too nervous to give credit.
“We were lucky though in that we had the support of some big suppliers because we shared our figures and plans with them and kept good communication. Without their faith we wouldn’t have been able to do what we did.”
Financially in 2019 the business actually made a small loss, according to Gray, who said it had been expected due to the CVA exit. However, having now moved to a six monthly financial reporting schedule the business posted a profit this March.
“It shows that we have turned a corner and are making money,” says Gray. “Hopefully people will see that our balance sheet, our debtors and our creditors have all improved. I’m pleased with that.”
He added that a second visit from Israel-based HP Indigo general manager Alon Bar-Shany in January had given the firm a real boost, with Bar-Shany “extremely impressed” with the company’s evolution since his first visit in 2018.
The advent of Covid-19 has, of course, rather thrown a fly in the ointment in terms of projected growth this year, compounding the already quiet months of the first quarter. However the business has continued to pick up work and operated without a loss from April to June, thanks to working closely with suppliers and stakeholders and making full use of the space afforded by its large premises, which supports easy socially distanced working, Hewitt explains.
“The help we’ve had from our suppliers will enable us to break even over the next three months and after that, it depends on what happens,” states Gray.
“The whole business picture is going to change dramatically going forward and I think it’s impossible to say right now what it’ll look like.”
While the road ahead for all business enterprises is uncertain, Gray remains optimistic that through experience and resilience Charlesworth can continue to grow, either organically or through potential merger and acquisition opportunities as well as possible expansion into the US.
Reflecting on the past few years Gray says that going through the CVA was actually the best thing that could have happened.
“It’s shown us that we can survive a struggle and we’ve made the changes we needed to and we’ll get through it without losing money.”
He adds: “And for the first time we really are a team. We can’t do our job without the people in every other department doing their jobs. It’s a team effort and no-one is better than anyone else.”
Business location Wakefield, West Yorkshire
Inspection hosts Charlesworth Press Mark Gray, managing director, Lee Hewit, operations director. Close Brothers Asset Finance Paul Philbrick, sales director print division
Size Turnover £6m, Staff:45
Established date 1973
Products and services Specialist in print-on-demand hardback and softback books as well as larger volume work, journals and commercial work
Kit B1 Heidelberg Speedmaster 102-5; HP Indigo 7800; two HP Indigo 12000s; and an array of finishing equipment from a range of manufacturers including MBO, Horizon, Muller Martini, Duplo, Kolbus and Renz
Inspection focus Successfully completing a CVA
- “Communication, communication, communication,” Gray says. “You have to really talk to people. Quite often businesses put their heads in the sand. People don’t want to listen to advice but quite simply, we wouldn’t have got through without the advice we had,” he explains.
- The pair both agree that key to navigating a process such as a CVA is building relationships and as such, honesty and openness within those. “That’s what people want and in business it’s not always there as much as we would like,” Gray states. “You have to share information and you have to prove that what you say you’ll do, you’ll do, and we’ve always done it. It’s given our suppliers and financial backers the confidence that we will achieve what we have said we will.
- Keeping one step ahead is key, according to Gray. “Constantly keep a check on processes - what needs restructuring? Where are the bottlenecks? What else could you be doing? Always keep ahead in terms of technology,” he says, adding: “If you feel you’ve done everything you can, then you’ve not done enough.”