Will the promise of jam tomorrow ever be delivered on?

By Jo Francis, Monday 18 April 2016

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Sometimes people say clever things, but only with the benefit of hindsight.

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The opposite applies to a very prescient comment made by one seasoned print executive in PrintWeek’s annual Power 100 survey, back in the autumn of 2014. 

Referring to Polestar chief executive Barry Hibbert, who had topped that year’s table thanks to Polestar’s £50m reinvestment in its web offset platform, and its coup in becoming the sole supplier to Time Inc UK, the print boss said: “With BGP out of the way, new presses and all of Time Inc’s work, there can be no more excuses.”

Oh dear. As it turned out, that crucial period in the autumn of 2014 when Polestar was firing up its new webs, and at the same time absorbing all of those Time Inc magazines, turned into something of bloodbath, with cash haemorrhaging from the business as it placed a huge amount of outwork with the trade. 

The financial squeeze continued into 2015, at which point the business that is now the group’s ‘new new’ owners, Proventus Capital Partners became involved, loaning Polestar a cool £90m in the spring. 

This move raised eyebrows at the time – why on earth would this Swedish investment house want to get involved in print, and specifically with Polestar where the track record of investors having their investments wiped out was surely writ large across the annals of European private equity investment history?

It was Polestar, after all, that made the headlines in the Financial Times business section back in December 2006, when its investors lost £700m and it was described as “one of the worst failures of a European leveraged buy-out deal in recent years” by the newspaper. 

Proventus, then, can have had no possible excuse for not being fully informed about what it was getting into. A few minutes spent on Google would have sufficed.

With Polestar, the promise has always been jam tomorrow, and its investors have invariably been left in a sticky spot. 

Through a series of complex refinancings over the years Polestar’s financial plates have always, somehow, been kept spinning – even the pre-pack sale to Sun Capital Partners in 2011 that jettisoned the group’s pension liability was carried out in such a way that the trade creditors remained whole. 

But not this time. The dust is still settling on the pre-pack deal that has resulted in Proventus buying back Polestar in another complex pre-pack. But this time, trade creditors have not been saved from pain and the situation remains up in the air for many. 

What’s clear is that even though Polestar is a much smaller company nowadays – £216.4m turnover in the year to September 2014, compared with some £535m at its peak – it’s still one of the biggest printers in the country and as such its ability to pay its bills, or otherwise, has a massive knock-on impact across the industry. 

One PrintWeek reader even likened the situation to the crisis surrounding Tata Steel UK. “Polestar is like the Port Talbot of the printing industry, when you think how many people are affected,” he says. 

For this reason few people are willing to speak on-the-record, despite the present situation resulting in strong feelings among competitors and those likely to be left with bad debts, and while the full extent of what the trade creditors of ‘old’ Polestar are owed is yet to be made public by administrators at PricewaterhouseCoopers.

Many creditors hope to find a way of recovering their position.

BPIF chief executive Charles Jarrold is at least willing to comment: “Polestar were BPIF members, but they’ve gone into administration, which means they have dropped out of the membership. My view is, as a major employer in the sector, I hope they can go through this process and come out as a stronger player in the industry. 

“It went through the Pre Pack Pool and it will be a case that we stand back and look at in the future and say ‘has this worked?’” Jarrold notes. 

‘New’ Polestar is in the process of securing ongoing supplies by negotiating so-called ‘golden hellos’ with some of its key suppliers, at the same time as it is moving to novate client contracts to the new company. The coming weeks are seen as a critical period for the firm as it battles to get suppliers and customers on board.

And there’s a feeling of déjà vu about management’s view on the group’s prospects going forward. According to the viability statement made at the time of the pre-pack, there’s a five-year business plan that paints a very positive picture for the future.

“The boards of the companies are confident that 2016 will be a transformational year which lays the groundwork for stable EBITDA and cashflow from the second half of 2016 onwards. A restructured business will revive confidence in suppliers and customers, allowing the group to realise its growth potential and be an attractive employer for its staff,” it states.

“The restructured group will operation its printing presses at greater production capacity, building on existing customers relationships to increase orders while maintaining high quality and deliverability. There will be a focus on minimising paper and material wastage to reduce costs and overheads.”

Will it, after all these years, be jam tomorrow?


READER REACTION

What do you think of the pre-pack?

Chief executive, printing company

“I can’t believe it, it’s an absolute disgrace. It gives them an advantageous cost basis, they couldn’t make money before but they can now be more competitive because they don’t have the same amount of costs to pay. Any self-respecting business shouldn’t deal with them. I know a lot of businesses aren’t. I think it’s completely wrong.”

Managing director, equipment supplier

“The UK market is relatively small, and shrinking. Suppliers have to deal with Polestar. Those who’ve taken a big hit might have opportunities to recoup that going forward. It all depends on their attitude.”

Managing director, consumables supplier

“It’s unbelievable really, isn’t it? Is it going to bounce back and become a leading player with trust and respect? EBITDA is a joke. What does it actually make when you put all the proper costs and depreciation in?”

Sales director, equipment supplier

“Any customer who goes through financial difficulties loses the right to credit.”

Chief executive, printing company

“I’m surprised at the relatively benign reaction so far. The trouble is, we all end up paying for it.”

Sales director, printing company

“There seems to be something fundamentally wrong with their business model. Ultimately the people who will decide the future for Polestar are its suppliers and customers.”


POLESTAR TIMELINE

1998 

BPC and Watmoughs merge to form Polestar in an £810m leveraged buyout deal, backed by Bahrain’s Investcorp

GPMU attempts to block merger

BPC’s Tony Rudston becomes CEO

Barry Hibbert, executive director and head of publications, leaves at the end of the year

1999

Forms consumer magazines arm

Polestar Carlisle is closed

£22m investment at Varnicoat includes 3.52m KBA TR10

GPMU says relationship is “at rock bottom”

Starts looking for continental buys

2000

Chief executive Tony Rudston ‘retires’

Finance director Jim Brown becomes CEO

Acquires Spain’s HelioColor

2001 

It emerges that Rudston received a £1.9m pay-off

Jim Brown leaves after just nine months at the helm

Barry Hibbert sensationally returns as CEO

2002  

Jim Brown’s £1m pay-off revealed

Chromoworks saved from closure by last-minute deal

Shuts down two presses at Watmoughs Idle

Loses Sky magazine contract

2003

Polestar Watford closure announced 

Confirms plans for greenfield gravure site

Watmoughs is closed

Moves into print management with new division

Buys Httprint’s e-commerce business

Spanish web and gravure operations merged with Grupo Prisa in joint venture

2004

COO Chris Pavlosky leaves as board is downsized

Polestar Anglia closes 

MBA Group buys Polestar Select Envelopes

Polestar East Kilbride closes

Packaging and labels businesses sold to management

Polestar Watford closes

Wins new contracts with Associated Newspapers and the Telegraph Group

2005

It is confirmed that News International’s supplements will move from Polestar to Arvato’s new site in Liverpool

Gravure printing begins at Polestar Sheffield 

Polestar Purnell to close 

2006

Polestar refinancing results in £700m write-off for investors, Investcorp loses its entire equity stake as JPMorgan, Deutsche Bank and Royal Bank of Scotland take control

Pension scheme liability of £141.7m separated from print business, Polestar agrees to pay in £45m over 12 years

Group sales and marketing director John Ashfield leaves

2007

BGP plans £25m investment in Bicester supersite 

2008

Closure plans announced for Polestar Greaves

Second debt-for-equity swap in two years as owners JPMorgan, Bluebay and Contrarian exchange the majority of their debt for equity

2009

Closes Newspac

Group operations director Peter Andreou leaves as part of leaner management structure

2010

Management restructure to save £8m a year

Defers £2.5m payment into pension scheme

Polestar Varnicoat to be downsized to single press

2011

Comes close to collapse before being acquired for £1 in pre-pack deal by Sun Capital Partners’ European wing, which also took on undisclosed amount of Polestar’s £95m debt

Sun Capital offloads £45m pension liability as part of deal

Hungarian wing Revai is sold

Hived off pension scheme enters Pension Protection Fund

Chief operating officer Catherine Hearn leaves

Peter Andreou returns as operations director

2012

Proposes Colchester closure, then withdraws plans 

Tries to persuade Sun Capital to back plans for web offset supersite

Acquires Goodhead Group in complex pre-pack

John Madejski becomes shareholder in Polestar Print Holdings

2013

Polestar Varnicoat closes

Polestar Chromoworks closes

Confirms £50m web offset re-equip including two 96pp Goss presses

Goodhead unsecured creditors owed more than £100m

2014

Wins all of Time Inc UK’s work

Construction of Sheffield web offset extension begins

Sun capital buys River Group, plans Polestar collaboration

Polestar Colchester closes

Chris Barker leaves

Starts printing on first 96pp web in September

Polestar Petty closure announced

2015

New capital structure allows Sun Capital to be paid a dividend

Sun subsequently puts £10m of equity back into group

Swedish investor Proventus loans group £90m

Proposes closure of Stones

CFO Peter Johnston leaves

COO Peter Andreou leaves

Chris Barker returns

Deloitte bought in to advise on new financial structure as Polestar faces Christmas cash crisis

Proventus takes control from Sun Capital, becomes majority shareholder

2016

Swagatam Mukerji appointed CFO

Four Proventus directors join board

PricewaterhouseCoopers appointed as administrators at five Polestar companies

Pre-pack sale to... Proventus

John Ashfield returns as non-exec

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