Hesitant customer activity, loss of contracts, lower volumes and falling prices in Australia saw PMP plunge back into the red in its first half results.
The company finished the half year with a net loss of $14.5m from the prior corresponding period (pcp) profit of $1.8m, although before significant items the loss was $2.9m .
Sales revenue increased 27.2 per cent from the H1 FY2016 result of $390.5m to $496.6m, almost all of which was due to Gordon and Gotch acquiring the Bauer distribution business.
For PMP Australia, the company says the inability to replace lost print contract volumes and a general sale price decline reduced print revenues by $28m, or 24 per cent pcp. After adjusting for these factors, PMP says heat-set print volumes fell by 2.1 per cent, while distribution sales fell by $7m, 14 per cent from the pcp, due to lost customers and lower catalogue frequency from some existing customers.
PMP says that EBIT loss in Australia was driven by lower heatset print volumes alongside lower print sell prices. PMP Australia’s sales revenue decreased by 20.5 per cent, as H1 FY 2017 brought in $151.4m, compared to the prior corresponding period of $190.4m. EBIT resulted in a loss for PMP Australia of $4.8m, down 140 per cent from the pcp result of $11.8m.
Peter George, CEO, PMP, says, “As we informed the market last year, PMP’s first half results were significantly lower pcp. The half was adversely impacted by extremely unusual print market conditions in the lead into the expected industry consolidation.
“With every major heatset print operation pursuing industry consolidation in the first half, the printers were aggressive in competing to retain existing contracts. Understandably, prospective print customers were wary of signing contracts where the future competitive market was not clear.
“As a result of the challenging market conditions, we were unsuccessful in replacing lost volumes, as well as from customers that went out of business in the last financial year. Profitability was also affected by postponing cost-out responses to the lower activity levels in anticipation of the IPMG merger going ahead as planned.”
The success of magazine arm Gordon and Gotch in acquiring Bauer contracts helped lift PMP Group sales to $496.6m, which was 27.2 per cent higher than the pcp. From the $106.1m increase, $112m came from Gordon and Gotch, helping mask a decrease in sales from PMP Australia.
EBITDA for the half year was sitting at $11.1m, some 62 per cent down from the pcp of $29m. PMP’s EBIT for H1 FY2017 is minus $1.8m, down 112 per cent from the positive pcp result of $14.8m.
Despite moving from profit to loss, PMP’s net debt (excluding prepaid finance costs) is down $0.5m, sitting at $9.8m from the pcp result of $10.4m.
The IMPG merger is slated to begin March 1. George says, “We are delighted to be able to complete the merger. It creates the opportunity for us to build a more competitive and sustainable company with significant synergy benefits and an enhanced manufacturing capability. Although the period prior to the merger was extremely unusual, we can now move quickly to deliver the identified synergies and add greater value for customers and shareholders.”
The company says annualised savings from transformation are now expected to be circa $55m, $15m higher than its original expectations when the transaction was announced in October 2016, at a cash cost of circa $80m, up from the original figure of $65m. PMP says annualised full year EBITDA (pre significant items) is expected to be $90-$100m from fiscal 2019, subject to market conditions.
When asked whether customers will return to PMP now that the ACCC has accepted the proposed IPMG merger and if prices will return to prior levels, Rodd Pahl, spokesman, PMP replies, “The merger decision has given everyone certainty. Everyone now knows that PMP and Hannan group are settled, alongside the IVE group. From here on out it will be normal market decisions which will resolve who gets what contract and where. Customers will set the market price.”
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