Chief executive Andy Blundell has spoken out on the industry’s need to improve margins, as Communisis posted sales up 9% for the half-year alongside an increase in underlying operating profits.
Sales at the group in the six months to 30 June rose 9% to £188.6m, while the headline figure for adjusted operating profit fell 7% to £7.7m.
However, Communisis has restated its 2017 results to comply with accounting standard IFRS 15, which was implemented from the beginning of the year. The 2017 figures included a £1.1m one-off gain related to a historical provision. If that is excluded, then underlying adjusted operating profits were actually up 7%.
“Our results are probably a bit more complicated than usual because there are quite a few moving parts, but overall we’re pretty pleased with trading. We’re delivering on the strategy as promised and the full-year outlook is unchanged,” he said.
The introduction of GDPR resulted in reduced direct marketing activity in the first half, Blundell said. “We took GDPR very seriously and invested heavily in preparation for it, and were in good shape by 25 May,” he explained.
Communisis invested more than £300,000 in preparation for the regulations.
“It became evident that some clients were completely confident about the integrity of their data and some had an ‘oh my goodness’ moment and drew right back because they weren’t confident. Others were only confident about a percentage of their usual mailing volume,” Blundell added.
He said that work had now started to build up again. “DM is always low over the summer, so we won’t really know the true recovery rate until autumn. I’m sure it will recover over time – if it doesn’t, brand owners will lose market share.”
The group reported an increase in the use of digital [online] channels for outbound communications from 9% to 14%, which Blundell said he expected to continue to increase.
Sales at the Customer Experience division (which includes transactional and DM print) rose 10.7% to £87.7m, with an adjusted operating profit of £12m (2017: £11.9m), while Brand Deployment (including sourcing and print management) topped £100m, rising nearly 7% from £94.3m to £100.9m. Adjusted operating profits in that division were £5.6m (2017: £5.2m).
Separately, the firm is looking at the potential to license its eUCN technology for the prevention of cheque fraud in international markets. The system is successfully in use at a number of UK banks.
Communisis has made a “seven-figure” investment in the region of £3m in software from Noosh, which it expects to implement fully by the end of the year once it is fully integrated with the group’s existing systems.
“We’ve chosen Noosh as the best-of-breed platform for the next phase of growth in Brand Deployment,” Blundell said. “We’ve bought it rather than do a bespoke development of our own because we think it is the best software available.”
Major business wins included a new five-year contract from insurer Zurich for outbound communications, and the expansion of an existing contract with a large FMCG business in its Brand Deployment business.
The group has also adopted a “more rigorous approach” to its new business pipeline as part of its ‘empowered organisation’ initiative.
“We’re in a market that tends to involve big chunks of business for large clients with long lead times, and we need to qualify that quite rigorously,” Blundell explained.
“This includes how we make decisions about work that we want to bid on. We’ve taken on several new people to sharpen our commercial edge in how we structure deals – how we make sure the commercial model is most appropriate and that we are interacting with the right clients.”
Scott Clarke, formerly director of channel marketing at Tesco, joined the business at the end of last year as group commercial planning director.
Blundell noted that the recent demise of SP Group highlighted fragility in the supply chain.
“The situation at SP Group is very sad. That’s a chunk of manufacturing gone and that’s not in anyone’s interests,” he said.
“We need to improve margins in this industry overall; that is the route to giving brand owners choice. There is a cost to innovation and we need to extract that. The bottom line is, it’s about sustainable margin.”
Net debt was reduced by 16% to £23.7m, and Communisis further reduced its pension deficit from £42m to £32.4m.
“We’ve established a goal of self-sufficiency for the scheme in about seven years and things are looking reasonably constructive there,” Blundell said.
Communisis shares nudged up 1.76% to 51.9p following the announcement.