Communisis unveils new structure

By Jo Francis, Thursday 04 August 2016

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Communisis has announced a new simplified structure alongside its interim results, while a £1m improvement in the performance of its print operations has helped push up overall profitability at the group.

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Blundell: new structure will result in significant cost reductions

The PLC has ditched its previous Produce, Deploy and Design segmentation in favour of two divisions: Brand Deployment (which encompasses the former Deploy operation and shopper marketing), and Customer Experience (which includes Produce and the rest of the group’s Design services).

Chief executive Andy Blundell said the new structure will result in significant cost reductions through ‘de-layering’ of roles and the outsourcing of some functions. Overall headcount is likely to reduce by some 10% as a result once the programme is complete, he said.

Communisis employed 2,351 people at its year-end.

The group is also consolidating its London HQ on Chiswell Street into the Little Portland Street offices of its agency Psona, which will result in around 150 employees being based at that location.

It has flattened reporting lines at its print operations and has outsourced its legal and facilities management functions. In addition the firm is looking at the potential to outsource IT.

In a similar vein to the outsourcing deals the group has undertaken itself with key clients such as banks, and which have seen it take on former bank print works employees, the Communisis legal team is now employed by Eversheds.

The changes will cost around £4m, but will save £3m a year.

Interim sales nudged up from £174.6m to £174.9m in the six months to 30 June, while operating profit prior to exceptionals was up 8% to £7.7m and pre-tax profit jumped 37% to £4.4m.

Exceptional items and amortisation of intangible asset costs were £2.2m, and net debt was reduced by £8.5m to £34.9m. Communisis finance director Mark Stoner said its covenants were “well covered”.

Group operating margins were dented by a change to a large contract whereby £18m of what had been ‘pass through’ sales is now reported under Brand Deployment. This reduced operating margins from 6% to 5.5%.

International business now accounts for 24% of sales and Communisis recently signed up a major deal with a healthcare client that is being managed out of its new operation in Dubai.

“It’s fairly astonishing when you think that we had no international sales five years ago. It’s gone from nothing to a quarter of sales,” Blundell noted.

The group is looking at further international expansion as part of its growth plans.

Although Customer Experience sales were down 6% on the prior year, the rate of erosion in printed bills and statements “continued to be lower than expected, at 1%”.

“We had been thinking it was likely to be in the 2%-3% range, but it can be affected by a multitude of factors. For example today’s interest rate change will result in lots of one-off communications,” Blundell said.

“There’s obviously a wish from many clients to get more digital [communications] in the mix to reduce costs, but there’s a lot of consumer preference still that paper plays a role,” he added.

“And in DM we have a very strong first half, because print is proven to play a role in the retail mix and specific DM is pretty potent.”

Operating profit at the print operation increased from £9.7m to £10.7m.

"We have shortened reporting lines at our mission-critical manufacturing operations, and looked at how we can operate most efficiently with the fewest layers between the general manager and the shopfloor," he explained.

Blundell said the group was focused on organic growth, but remained open to M&A opportunities. He declined to comment on the up-for-sale DST UK business.

"We are market leader by a mile [in transactional print], but we don't operate in a vacuum," he said. "I think the industry consolidation trend will continue."

Communisis has seen a short-term benefit of the EU Referendum results, due to exchange rate benefits, although a fall in gilt rates has adversely impacted its pension liability which rose to £44.3m (2015: £39.2m).

Blundell said other potential Brexit effects were unknown at this time, but he remained upbeat. “We still see significant opportunity in the EU, and Brexit pressure on banks means they could outsource more and that could also be an opportunity for us.”

The group’s share price jumped by 7.25%, or 2.5p, to 37p after the announcement.

 

 

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