Communisis capitalises on mission-critical mail

By Jo Francis, Thursday 03 August 2017

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Communisis has confirmed that it has won the HSBC marcomms work previously handled by St Ives, alongside interim results where print margins have increased to double-digits.

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Blundell: "Group margins have scope to grow"

In May PrintWeek revealed that Communisis was tipped to win the work, and it has now inked a five-year deal with the bank for marketing communications collateral, in addition to the transactional, content marketing and fulfilment services it already provides to HSBC.

“The contract is signed and preparations are well advanced to take the work on as of now and through the rest of the year,” said Communisis chief executive Andy Blundell. “There’s quite a lot of direct mail involved, which is helpful for our Leeds facility.”

Blundell described the overall results as “solid” and said the group was anticipating a strong performance in direct mail for the remainder of the year. “The trend is toward things being much more targeted, and there’s a blurring between transactional, statutory mailings, and DM,” he added. “There’s also some evidence that demographics are showing that it’s starting to appeal to the younger generation who haven’t traditionally had much mail.”

Group sales in the six months to 30 June rose by 6% to £186m, while adjusted operating profit (prior to exceptionals and amortisation of intangibles) was up 10% to £8.5m.

Although print volumes declined by 4%, and sales in its Customer Experience division slipped 1.7% to £93.5m, operating profits at the wing jumped by 19% to £11.2m resulting in a double-digit margin of 12%.

“We have some good long-term contracts in place, we’ve invested and we’re controlling costs,” Blundell said. “We’re also at the mission-critical end of the market which commands some premium.”

The firm invested £1.6m in a new digitisation site earlier this year. 

Sales at Brand Deployment grew by nearly 16% to £92.5m, but operating margins slipped from 8% to 6.6%. Blundell said this was due to a combination of factors including investments in the operation, phasing issues and higher input costs which impacted the potential for shared gains. “Margins need to improve and will improve,” he stated. “Group margins have scope to grow and we intend to do that.”

The fast-growing international side of the group now accounts for 30% of total revenues, and Communisis is looking to expand into additional markets such as Russia and Africa.

“We are dealing with brand owner clients who are truly global companies and we need, therefore, to provide services on an international basis. They see no barriers and neither should we,” said Blundell.

Speaking about the competitive landscape in general, following RR Donnelley’s demerger, the merger of GI Solutions and Eclipse, and with likely changes to come at Williams Lea and St Ives, Blundell said: “It all suggests there is probably more consolidation to come.”

Group central costs in the period increased from £5.5m to £6.1m due to additional costs involved in preparing for the introduction of the EU’s General Data Protection Regulation (GDPR) next year, and investments in cyber security.

Exceptional costs were £1.6m, mainly due to restructuring and write-offs in its agency business, as well as the closure of its Glasgow office.

Pre-tax profits increased by 13% to £5m, and net debt was reduced to £28.3m (2016: £34.9m).

Communisis also nailed down two important financial matters. The PLC has agreed a new, £65m, five-year revolving credit facility on improved terms with a consortium of three banks, including a new provider with specific expertise in international markets.

Communisis has also agreed in principle a contribution plan with its pension scheme trustees. The deficit in the scheme decreased from £55.5m to £42m due to changes in the discount rate. Communisis will contribute £2.55m in deficit repair payments and £1.15m in rental payments for the next three years. “We are serious about supporting our obligations,” said finance director Mark Stoner. “We are looking at the relevant options with the trustees to reduce the deficit going forward.”

Communisis shares rose by 1.3p, or 2.8%, to 47.8p on the news (52-week high: 57.5p low: 33.5p).

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