St Ives to initiate cost-reduction measures
Friday, January 20, 2017
St Ives has initiated further cost-reduction measures in its Marketing Activation segment, leading its share price to fall to a six-month low.
In a trading statement issued prior to its half-year results, due in March, the company stated that due to the increased pressure on operating margins in the division, it had initiated the cost-reduction measures and that it expected to reap the benefits of these actions by the end of this financial year.
While it expects the rate of revenue decline to have lessened (2% over the half-year period compared with 7% for the previous full year), it said pressure on operating margins had increased.
The company said the ongoing decline was due to the division's heavy reliance on the grocery retail sector, which was also experiencing pressure.
Mark McCleery, managing director of SP Group, part of St Ives' Marketing Activation arm, said: “SP Group has undertaken a strategic review in response to market changes, including the continued move from traditional to digital printing platforms.
“This has resulted in a consolidation and reduction of workforce requirements, which is necessary in order to help us continue to be the UK’s leading provider of cost-effective point-of-sale solutions. St Ives PLC is committed to SP Group and our clients’ changing business needs.
"The strategic review at the SP Group is part of wider cost-reduction measures within the Marketing Activation segment."
McCleery went on to say that as part of an investment to support the re-shaping of operations, it had approved the installation of new capital equipment in SP’s Redditch facility “to ensure the ongoing delivery of customer service excellence”.
Following the statement, St Ives' share price plummeted 39.7% overnight to 76.25p, its lowest level since July.
St Ives board said that in light of pressures within the Marketing Activation segment, profits for the full financial year are expected to be “materially below” its previous expectations. It remains confident in the long-term strategy and growth opportunities to the group.
In its Strategic Marketing segment, revenue is expected to be approximately 9% above the equivalent period last year. Excluding acquisitions, it would be roughly the same.
The group said that revenue growth and operating margin had been impacted by a number of project cancellations and deferrals in Q4 of the previous financial year, but added that progress to replace cancelled work was "encouraging" although taking longer than previously anticipated.
In its Clays books division, revenues are expected to be up 13% on the previous year, mainly due to strong pre-Christmas trading helped by two recently published JK Rowling novels.
The group said in its full-year results last October that profits were “very much on track”, even after a £10.2m goodwill write-down at SP Group had led it to a £5.7m pre-tax loss for the year.
At time of writing, St Ives' share price had fallen further to 75.8p.