Profits slump at St Ives print ops

Jo Francis
Tuesday, October 3, 2017

Bottom line losses at St Ives have ballooned to £44.1m, and the group has reported a collapse in the profitability of its up-for-sale printing operations.

In its results for the year ending 28 July St Ives posted group sales up 7% to £393.2m, while adjusted pre-tax profits slumped by 21% to £24.1m.

Pre-tax losses increased more than seven-fold from £5.7m to £44.1m after a number of ‘adjusting items’ had been taken into account, totalling £68.2m (2016: £36.1m). These included £33.1m of impairment charges, primarily at its print operations; a £10m write-down in the value of acquired intangible assets; £23m of contingent consideration related to prior acquisitions; £3m in restructuring costs and £1.9m in pension scheme costs.

Capex spending was also slashed, and was cut from £7.6m to £3.5m.

More positively, the group’s net debt was reduced from £80.8m to £54.6m, and its pension deficit has come down to £16m from £26.4m.

Sales at large-format print business Marketing Activation, which includes SP Group, Service Graphics and Tactical Solutions, were effectively flat at £153.7m (2016: £154.8m), while adjusted operating profit nearly halved and was down by almost 47% at £4.3m. The business recently learned that it had lost its contract with Sainsbury’s for point-of-sale work, and this has resulted in a further £2.5m impairment charge at Service Graphics.

St Ives will keep printing for Sainsbury’s until the end of the year. It has been targeting new clients to reduce its reliance on grocery retailers, and reported new business wins with  Royal Mail, Innocent, Superdry, AkzoNobel, ESPA and OfficeTeam.

At the Books division, Clays in Bungay, sales increased by 12% to £76.5m after the business won a huge contract with Penguin Random House. It also benefited from last year’s pre-Christmas boost in book sales. But adjusted operating profit at the traditionally high margin business more than halved to £2.6m (2016: £5.8m), with margins falling from 9% to 3%.

Clays has also lost its HarperCollins contract to arch-rival CPI, although it continued to print for the publisher for 11 months of this financial year. The loss of the HarperCollins work will result in an £11m reduction in sales, and a £3.5m hit to adjusted operating profit.

Restructuring and redundancies have taken place at the business as a result, at a cost of £1.5m, along with a £2.9m impairment charge.

After a torrid period that involved the group posting its third profits warning within the space of a year in January, and its share price hitting a new all-time low of 37.3p over the summer, St Ives chief executive Matt Armitage said: “The principal challenges remain in our legacy Marketing Activation and Books segments where, despite their strong market positions, increased competition continues to exert downward pressure on margins. In response, the board has taken immediate action to reduce the cost base of both segments to reflect the new market realities.”

There was no substantial update on the progress of its strategic review involving the sell-off of its printing operations, but Armitage described it as a “top priority”.

Uncertainty over the future for a number of key contracts is likely to have put off some potential buyers

He said: “We recognise the need to address, decisively, the effect that the legacy businesses are having on the group's overall performance and on our ability to generate value for shareholders. This, together with further strengthening of our balance sheet, remains a top priority for the board looking forward.”

St Ives is understood to have received a number of expressions of interest in the Clays business from potential buyers in Europe and the Far East.

The group has pinned its future on its Strategic Marketing operations covering digital, data and insight. Armitage said trading at the wing had recovered and the group now had an “encouraging” pipeline of new business.

Strategic Marketing sales rose from £144.1m to £163m and profits increased by 4% to £20.2m, although margins fell from 13.5% to 12.4%.

The division has been amassed at great expense through a series of M&A deals, but further acquisitions are on the back burner for the time being. “Given the recent challenges across the group, we are currently prioritising organic over acquisitive growth, including leveraging the investments we have made in existing propositions and in new offices,” Armitage said.

In an unusual move it has also upped the terms of its buyout deal with the owners of US-headquartered Solstice Consulting, which was acquired in March 2015 for up to £50m. It will now potentially pay an additional £3.4m in cash and shares.

The group said the increase was justified because “exchange rates for Sterling into US Dollars have fallen significantly and much more than either party envisaged” since the acquisition, and it wanted to ensure there was still a strong incentive to management to maximise the firm’s performance.

It is set to pay out £20.5m in cash to the vendors of Solstice and The App Business next year, and further £8.5m in 2019.

St Ives brought in £11.7m through the sale of three surplus properties, including the Roche and Peterborough sites currently occupied by Wyndeham Group.

The group’s net assets reduced from £133.6m to £97.2m.

Shares in St Ives, which had reached a three-month high of 80.5p last month, slipped by 1.26% to 78.5p on the news. The group has slashed its full-year dividend by 75%, to just 1.95p.



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