St Ives Pre-Tax Profits Recover But Still £5m Loss

St Ives plc, the UK's leading printing group has increased its profitability before tax by 2.6% despite lower turnover - down by 6.3% in announced in its interim results.

St Ives plc, the UK's leading printing group has increased its profitability before tax by 2.6% despite lower turnover - down by 6.3% in announced in its interim results for the 26 weeks ended 30 January 2004.

Turnover was ?208.8m (2003: ?222.9m), with underlying pre tax profit up to ?17.1m from ?16.7m in 2003.

However, due to exceptional charges of ?22.1 million, including goodwill impairment of ?13 million, there was a loss before tax of ?5.0 million (2003 - profit before tax of ?15.2 million).

Commenting on the results, chairman, Miles Emley said: "Trading in the first six months of the year remained extremely challenging with overcapacity and continuing pricing pressure across most of our markets.

In spite of these adverse trading conditions we have achieved modest increases in underlying profitability, earnings and margins.

We will continue our investment to reduce costs and improve productivity." He said the cost base would be kept under review and the company was confident that when market conditions begin to improve it would be able to deliver improved returns to shareholders.

Earnings per share before exceptional items and goodwill amortisation and impairment were 10.81 pence (2003 - 10.77 pence).

Basic earnings per share were a loss of 10.58 pence per share (2003 - a profit of 9.54 pence per share).

An interim dividend of 5.0 pence per share (2003 - 5.0 pence per share) has been declared, which will be paid on 21 May 2004 to shareholders on the register on 23 April 2004.

In its markets, St.

Ives reported that the demand for books held up well.

Sales of books increased modestly.

Sales of cased books for the trade and general, religious and reference markets were above those achieved in the first half of the previous year.

The company continues to supply almost all the leading trade publishing houses in the UK and produced the majority of their best selling titles in both cased and paperback bindings.

The reliable service and short lead times which we are able to offer have been particularly important in winning this business believes the company.

Conditions in other markets remained extremely challenging throughout the half year.

Demand for web offset products in all markets was volatile and pricing pressure particularly severe.

In those circumstances, the company believed it did well to achieve turnover only 6.3 per cent below the first half of last year (4.4 per cent lower ignoring exchange rate movements), while at the same time achieving a modest increase in underlying profitability and an improvement in margin.

As a result of the cost reduction initiatives principally undertaken in earlier periods, both direct and indirect costs were lower overall.

Emley said that regrettably, St.

Ives had announced the closure of St Ives Inc, Case-Hoyt shortly before the end of the half year.

The estimated cost, including the cost of 300 redundancies, was charged as an exceptional item in the half year.

"Since the end of the half year, we have announced the proposed relocation of St Ives Multimedia at Tunbridge Wells to our site at Crayford at an estimated cost of ?4 million, which will also be treated as exceptional." Export sales, mainly to European markets, were ahead of the previous year.

Direct Response and Commercial UK Sales to these markets in the UK were slightly lower.

The effects of further pricing pressure and weak demand for longer-run, commodity products were offset by higher sales of shorter-run, more specialist products.

Sales of personalised products and associated fulfilment services were particularly strong and benefited from the completion of the relocation of direct mail operations in the previous year.

As a result of the more favourable balance of work, overall our businesses serving these markets showed an improved return.

Demand from these markets in Germany remained subdued and continuing over-capacity resulted in further pressure on prices.

Sales were broadly maintained and an improvement in the mix of work resulted in a small reduction in the level of losses.

In the catalogue and brochure market in the USA, St.

Ives experienced weak demand and continuing pricing pressure.

In particular it is no longer able to achieve historic levels of pricing in the high quality retail and travel and leisure sectors.

Sales and profit were significantly reduced as a result, although there was some benefit from the cost reductions of previous years.

"In those circumstances, the cost base of our facility at Rochester proved unsustainable and, as we were not able to reach agreement on the changes needed to make it viable, the decision was taken to close the plant shortly before the end of the half year," commented Emley.

Corporate financial markets remained extremely quiet throughout the period.

In the USA St.

Ives achieved a small increase in sales to a level at which, as a result of earlier cost reductions, it was able to break-even.

In the UK and Europe, there has been no such improvement and pricing for the available work became even more competitive; despite further reductions in the cost base, losses, albeit at a reduced level, were incurred.

Other, non-specialist printers have sought to enter the market for reports for mutual funds and public companies, which is becoming increasingly competitive as a result.

In the UK the market price for production of magazines has been under severe pressure and pagination, particularly in longer-run, less specialist titles, has been volatile.

Accordingly sales were lower.

Although at times he said St.

Ives was extremely busy, current pricing levels do not always support the service and flexibility, which it provides to customers, especially if overtime working at premium rates is required.

Despite reduced costs, profit was below the level of the first half of the previous year.

An investment of almost ?5 million in new binding equipment at the Peterborough factory will result in greater productivity and lower cost when it becomes operational at the start of the next financial year.

In the USA fluctuating demand in an over-supplied market led to reduced volume and price and consequently lower returns.

While music and multimedia markets overall remained subdued, St.

Ives experienced growth in sales of DVD related products and of special packaging material for both CD and DVD products both in the UK and Europe.

The improved work mix and better utilisation resulted in a modestly improved financial performance overall.

Nonetheless the operations at Tunbridge Wells and Crayford together achieved a result only slightly better than break-even and shortly after the end of the half-year the decision was taken to propose the relocation of operations at Tunbridge Wells to the more suitable, modern facility at Crayford.

That was likely to result in the loss of 40 jobs but would reduce the cost of the combined operations, allow for improved utilisation and enable sales growth of special packaging products.

Shareholders' funds reduced from ?239 million at August 1 2003 to ?220 million as a result of the exceptional charges, including goodwill impairment, incurred during the period.

Net cash resources remained substantial.

"However, as already announced, at the end of May we will make a special payment of ?25 million into the defined benefit pension scheme as part of a number of changes, including a reduction in the future accrual rate.

The scheme has been closed to new members since April 2002," said the chairman.

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