PMP has downgraded its financial forecast for fiscal years 2018 and 2019 from $70-75m and $90-100m to $50-55m and $70-80m respectively.
PMP shares plummeted following the announcement – and that of Peter George’s retirement – from 76 cents to 50 cents.
PMP has named a number of reasons for the downgrade including a $12m synergy shortfall, $16m pricing assumptions and contract renewals, and $14m labour and operational costs.
The company says as the integration of PMP and IPMG has progressed it has become clear that the guidance previously announced for fiscal 2018-2019 will not be met.
The company says the new guidance predominately reflects a higher cost base than the pre-merger synergy plan envisaged, to a accommodate larger than expected volumes of short format work, and lower than assumed sell prices. The company has identified and is implementing additional phase 2 cost savings to improve profitability
[Related: PMP takes hit with merger costs]
The company says the net debt for June will be around $30m-$35m.
PMP says the incremental annualised benefit from the new phase 2 cost initiatives is estimated to be $43.5m. These will be delivered over fiscal 2018-2019. The cash cost to deliver these projects is estimated to be an additional $29m which will be incurred $20m in fiscal 2018 and $9m in fiscal 2019.
It expects with these initiatives the underlying EBITDA run rate for the second half of 2018 to be in line with original guidance.
Peter George, outgoing CEO at PMP says, “Given the large amount of short run complete work that was transferred into the merged group we have had to maintain an increased operation cost structure to deliver on customer expectations. This extra short run work required a higher cost base affecting our ability to deliver the full anticipated synergy benefits, and also required additional labour costs including casual employees and overtime payments. We also had to re-set price on some key contracts to reflect market conditions.
“The company has responded quickly and has identified a number of new cost out projects, described as phase 2 cost initiatives. These will be undertaken over the ensuing 18 months. We have started to implement several of these including: changes in shift patterns at the larger sites to significantly reduce overtime, commissioning of additional bindery equipment, further headcount reductions and repricing work on smaller format presses. These savings are expected to improve FY19 profitability to $70 to $80m.”
This is not the first time PMP has downgraded its figures, in June the company downgraded its full year profit to an EBITDA of $31m-$34m from its previous $36m-$41m, stating lower than average print sales. In august, the company announced an EBITDA of $90-100m by FY2019 saying its supply capacity is now aligned with market demand.
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