St Ives Back In Black But Price Pressures Remain

St Ives Plc has reversed its earlier losses and turned in a pre-tax profit of GBP 19.8m from a marginally increased turnover of GBP 210.8m for the half-year ended 28 January.

St Ives Plc has reversed its earlier losses and turned in a pre-tax profit of GBP 19.8m from a marginally increased turnover of GBP 210.8m for the half-year ended 28 January.

Those figures compare with a 2004 turnover of GBP 208.8m and a loss of GBP 5m.

Commenting on the results, St Ives chairman, Miles Emley said: "The overall improvement in the underlying result was attributable to rationalisation measures, a continued concentration on products with more demanding requirements and an initial contribution from SP Group, which was acquired in last September.

We will not maintain capacity or pursue market share for its own sake and remain committed to creating value for our shareholders.

To this end, we will sharpen our focus on shorter-run, specialist work where short lead times and quick reprints, together with complex distribution, logistics and fulfilment, help to reduce our customers' costs while enabling us to make a satisfactory return." St Ives said that the overall improvement in the underlying result was attributable to rationalisation measures undertaken last year, especially in the USA, as well as the initial contribution from SP Group.

Earnings per share before exceptional items and goodwill amortisation were 12.59 pence (compared to 10.81 pence in 2004).

Basic earnings per share were 12.96 pence (compared to 2004's loss of 10.58 pence).

The interim dividend has been maintained at 5.00p per share.

As indicated in the preliminary announcement of the group's results for last year, many of St Ives' markets continued to experience fluctuating demand, deflationary pricing and significant over-capacity said the group.

Those conditions were especially prevalent in markets for non-time-sensitive, commodity and longer-run products, whilst corporate finance markets remained quiet, although demand for books was maintained.

There was no significant uplift in levels of activity in corporate financial markets in either the UK or USA.

Despite further price competition, sales of fund and company annual reports were higher than in the previous year, albeit demand for those products was mainly in the second half of St Ives' financial year.

However, as a result of earlier cost reduction initiatives, losses in the UK were reduced, commented the company.

Sales to book publishers were at similar levels to those in the previous year and St Ives said it had again produced a high proportion of best-selling titles, because of the responsive service it is able to offer customers, and it has increased sales of ancillary added-value services.

However, because of the strength of sterling against the US dollar, exports were lower.

In the direct response, commercial and point-of-sale (POS) markets in the UK St Ives reported that weak demand from a broad range of customers resulted in reduced volumes of mailings and personalised products, as well as other forms of commercial print.

Price competition in the market for longer-run, commodity products was especially intense, because of continuing over-capacity in web offset.

As a result of those factors, the company said it proved difficult to achieve satisfactory utilisation of its direct mail and commercial facilities at acceptable prices, and financial returns were below those generated in the first half of the previous year.

SP Group, which provides point-of-sale products and services to retailers and international brand companies, performed in line with expectations said St Ives.

In the four and a half months since its acquisition, it contributed sales of GBP 15.3 million, more than offsetting the reduction in other commercial sales to the UK market, whilst its operating profit before goodwill amortisation was GBP 1.9 million.

In Germany, despite the absence of any improvement in demand and continued weak pricing in its markets, Johler Druck, St Ives' German subsidiary, achieved an increase in sales and greater efficiencies and cost reductions led to a further reduction in the level of losses.

However, St Ives disposed of its interest in Johler Druck on April 5 this year for a cash consideration of GBP 1.5 million because it no longer formed part of St Ives' strategic focus.

The net asset value of Johler at July 30 2004 was GBP 9.4 million and in the financial year ended on that date the company made an operating loss (before interest) of GBP 935,000.

In addition to the loss arising on disposal at below net asset value, GBP 5.9 million will be charged as an exceptional item in respect of goodwill previously written off to reserves and now required to be written back and written off to the profit and loss account said St Ives.

In the USA, the company reported that sales were reduced following the closure of its Rochester facility in the second half of the previous financial year.

However, despite continuing pricing pressure, the benefits of the rationalisation were evident in improved utilisation and a more suitable mix of work and returns improved as a result, added St Ives.

Sales of magazines in the UK were at similar levels to the prior year and continuing over-capacity led to further pressure on pricing and under-utilisation of St Ives resources, especially of capacity more suited to longer-run products it said.

Market conditions in the USA were reported to be similar to those in the UK although the company's own sales and utilisation improved, leading to a better financial result.

In multimedia, St Ives' sales to the market grew, despite continued pricing pressure.

Sales of special packaging products for both CD and DVD increased, while printing for standard CD products reduced further.

Improved sales and utilisation at St Ives' factory at Uden (Holland) led to a better result there, it added.

St Ives commented that in the light of the continuing over-capacity that exists in many of its markets, the group had been keeping its cost base under continuous review.

As part of the review, St Ives announced the proposed closure of its Caerphilly (UK) factory with the expected loss of 210 jobs and consultations with the employees at Caerphilly continue said the group.

The closure of St Ives' sheetfed facility in Bristol (UK) and the cessation of perfect binding in Leeds (UK) both took effect during March and, as previously announced, the costs of those and other measures are estimated to amount to GBP 13 million (of which around GBP 5 million is in cash and about GBP 1 million represents the write-down of goodwill previously charged to reserves) and will be charged as an exceptional item in the second half of the financial year said the group.

St Ives said it will be commissioning what it described as more productive replacement presses in its UK factories at Peterborough and Roche.

The purpose of that investment, as with the recent installation of a high speed stitching line at Peterborough, was to reduce the group's unit cost of production, to increase productivity and to enhance the flexibility and responsiveness of the service it offers.

St Ives said it will continue to invest to reduce costs and improve service, but not to maintain capacity or pursue market share for its own sake where the risk and returns are not economic.

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