Communisis posts 27% sales growth and reveals new business win

Richard Stuart-Turner
Thursday, March 5, 2015

Sales are up at Communisis for the fifth consecutive year and the group has secured a significant new financial services contract as it targets further growth in 2015.

In its preliminary results Communisis posted sales up 27% to £343m for the year to 31 December 2014.

In its results announcement this morning the group also revealed it had won a six-year contract from Axa UK for both incoming and outgoing marketing and operational customer communication services for all its UK brands, including SunLife, Wealth, Insurance and PPP Healthcare.

“This is an important deal. It makes a move very substantially into the insurance sector and Axa will become a top-10 client for Communisis,” said chief executive Andy Blundell.

Communisis has taken on responsibility for a number of Axa’s sites, notably the one in Lytham St Annes, and around 115 Axa staff will move across to Communisis under TUPE.

The firm also highlighted overseas sales as one of it's recent highlights, with international revenues increasing 36% to £66.5m, now accounting for 19% of the firm’s total turnover.

The overseas turnover growth was attributed to the group’s contract with Procter & Gamble Europe for brand building services in Europe, which has been extended for a further five year term, as well as adding new consumer goods clients in the drinks, technology and pharmaceuticals sectors.

Blundell told PrintWeek he was “delighted and proud” of the group’s performance.

“We’ve grown this business by 20% every year for five years and that’s pretty positive. We’ve got growth just about all the way across the key metrics.

“Five years ago we had nothing outside the UK and we’ve now not only grown our overseas revenue year-on-year by 36% but we’re very close to our 20% target as a proportion of total turnover.”

He added that the firm has set itself a longer term goal for overseas turnover to account for one third of the group's total.

The group’s range of services was extended early in the year with the acquisition of imaging and mail processing capabilities for incoming customer communications under an outsourcing contract with Lloyds Banking Group.

On a segmental basis, sales in the Communisis’ ‘design’ operation rose 26.8% to £26.5m, ‘produce’ grew 28.5% to £150.7m, and ‘deploy’ dipped slightly by 1.25% to £55.2m.

'Pass-through’ sales for managed services clients grew from £76m to £110.6m.

Operating profits, prior to exceptionals, rose to £15m but the company incurred a loss after tax of £15m. This was due to a £21m non-cash provision for goodwill impairment.

Finance director Mark Stoner said: “The impairment has arisen in our produce segment and relates to acquisitions from the early 2000s and some of the legacy products associated to Waddingtons and Rexam. It is only an accounting entry and there is no cash impact at all.”

The basic loss per share was 7.67p, compared to 2013 earnings of 2.65p. Communisis increased its full-year dividend to shareholders by 11% to 2p a share.

The operating margin on sales (excluding pass-through), maintained at 6.9%.

Stoner said this was a little behind the consensus number and that the primary driver was a slight fall in the design operation, which posted an adjusted operating profit of £3.4m compared to £3.6m last year. This was attributed to a reduction in data sales.

“We expect that margin to pull back closer to the 18% or 19% mark as we move forward into 2015, which will push the group’s margin over 7% and up towards 8%.

Stoner pointed out though that deploy is performing “extremely well”, with adjusted operating profit up 43.8% from £9.6m last year to £13.8m this year.

Blundell added: “We’ve got two key KPIs in the market. One is to achieve 20% of our sales outside the UK, which we’ve just about done ahead of time.

“The second KPI is to get to a double-digit margin for the group as a whole, and, as we’ve sorted various things out this year and put a lot of growth and activity through the business, we’re back on the turbo charger this year and we expect that double-digit to be a reality as a run rate going out of 2016.”

The company’s net debt increased to £35.9m from £25.7m, which Blundell said was almost wholly accounted for by acquisitions.

“It effectively says that the rest of the business has grown, to the extent it’s grown in terms of turnover activity, but we’ve not had a step-change in terms of working capital and so on and that’s very encouraging.”

The group’s triennial pension deficit valuation substantially reduced by almost half at £19.5m (from a £38m deficit in 2011).

As a result, Blundell said the firm is “responsibly reducing” the company contributions to the scheme by about half, from £3m a year to £1.5m a year.

Communisis has continued to make a number of acquisitions over the past year. Blundell said he was pleased with the impact on the group of recent acquisitions, including Jacaranda, Public Creative, The Communications Agency (TCA), Geronimo and Life Marketing Consultancy, and remained alert to further M&A opportunities should they arise.

Looking forwards, Blundell said: “We’ve got some great blue-chip client relationships and we think we’ve got the right model in place; a strong design integrated digital front-end, a specialist manufacturing business in produce which is bolstered by outsource, and the growth that we’re seeing in our overseas supply chain.

“We’ve got a further big growth consensus in the market for 2015 but at this early stage the prospects are good and we aim to do the same in 2015 as we have for the last five years and push the business further ahead.”

Communisis currently employs 2,200 staff, 150 of which are based overseas. It delivers services into 73 countries. The group’s share price had fallen 3.4p to 57.6p at the time of writing.

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