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PMP shares crash on earnings downgrade

Wednesday, 22 November 2017
By Graham Osborne

PMP’s plant at Clayton in Melbourne.

Shares in the region’s largest printing company fell by more than 31% in one day after PMP warned that higher volumes of short run work had contributed to a $20m downgrade in profit forecasts.

As the integration of PMP and IPMG has progressed, it has now become clear that the guidance previously announced for fiscal 2018-2019 will not be met, the company told the ASX on Monday.

Within hours of the announcement, PMP’s share price had plummeted from 77c to 47c, before recovering to 51c on Tuesday afternoon.

An industry analyst said the company’s employment of casual workers following its merger with IPMG in March indicated “a miscalculation of labour capacity for commercial short run work.”

According to The Australian Financial Review, the profit downgrade and share price collapse hit major shareholders and former IPMG owners the Hannan family especially hard: The 37 per cent stake owned by Lindsay Hannan, Adrian O’Connor, Richard O’Connor, Michael Hannan, James Hannan and family vehicle Sayman lost almost 31 per cent of its value, or $45 million, in a day.

The company said its Print Australia business had been adversely affected by:

Synergy shortfall $12m:
We originally expected to deliver $55m of cost synergies as a result of the merger. $43m of savings have been delivered. The higher volumes of short run work have been a major factor in preventing PMP from delivering the final $12m of expected labour savings.

 Pricing assumptions and contract renewals $16m
The majority of this relates to assumptions made around pricing. We assumed average higher prices for some of the work in the post-merger volumes.

Labour & operational costs $14m:
The volumes of the short run work, which is labour intensive and required additional equipment to produce therefore resulted in a cost base greater than anticipated. This has resulted in increased manufacturing costs being incurred.

PMP’s plant at Warwick Farm in Sydney.

PMP downgraded its EBITDA forecast for FY 2018 from between $70m to $75m to between $50m and $55m, a fall of about 28%.  2019’s forecasts have been cut from $90m-$100m to $70m-$80m.

‘This extra short run work required a higher cost base’: PMP CEO Peter George.

“Given the large amount of short run complex work that was transferred into the merged group we have had to maintain an increased operational cost structure to deliver on customer expectations,” said PMP CEO Peter George. “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 $70m to $80m.”

‘The next step is to complete the integration’: Incoming Interim CEO Kevin Slaven.

Meanwhile, the company announced that George would step down at the end of this month following ‘a tragic family bereavement’ and be replaced by former IPMG CEO Kevin Slaven, who will start as Interim CEO on 1 December.  

“It has been a privilege to work with Peter,” said PMP chairman Matthew Bickford-Smith. “His disciplined focus on efficiency and cash generation have secured PMP’s future. The merger with IPMG could not have been achieved without Peter’s vision and leadership. We offer our deepest condolences to him and his family at this difficult time. Given Peter’s original intention to retire next year, we had already begun the succession planning process, which will now be accelerated.”

In August, George told Print21’s Patrick Howard of his determination to transform the billion dollar-plus company into a debt-free powerhouse.

Slaven, who joined PMP with the merger in March 2017, will start as Interim CEO on 1 December.

“Kevin is a well-respected and highly effective leader in the industry with a strong track record of managing integrated print and distribution,” said Bickford-Smith.

Slaven said he was looking forward to “building on the strong foundations that Peter George and the board have put together following the merger. Much of the integration has been done. The next step is to complete the integration, the phase 2 initiatives, and leverage PMP’s position as the pre-eminent print media and marketing services company in Australasia.”

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4 Responses to “PMP shares crash on earnings downgrade”

  1. November 22, 2017 at 12:00 pm,

    Print Newbie
    said:

    We never saw this coming.

    Making redundant printers who could manage 6 or 7 make-readies in a 12 hour shift on a 32pp twin web press and expecting PMP’s double blanket behemoths to do the same work…

    Maybe IPMG’s accounting of intercompany work in the years leading up to the takeover didn’t help things either?

    Several machines at Lidcombe plant could have been utilised during this time (Especially the perfect binder) unfortunately still sitting there hoping for a buyer.

    Ah well, you gotta crack a few eggs to make an omelette. Suck it up shareholders and think of the years that PMP did make decent profits surely those days will come again.

  2. November 22, 2017 at 12:55 pm,

    Fairgo
    said:

    Keep the faith; there are some very smart people there, I feel sure PMP will bounce back..already has started. Markets are jittery right now.

  3. November 22, 2017 at 4:12 pm,

    christopher day
    said:

    In reply to comment by Print Newbie, you would have to have a long memory to when PMP did make a profit and pay a dividend to its share holders?
    My memory goes back to before PMP even existed, when it was Wilkie’s & Advertiser Group with Herald Group all in the share register as 3 different listed companies. PMP only came into existence when News Ltd purchased Herald Group, and then floated off the print division plus other parts like distribution into PMP.
    Having worked for company (public listed G W Greens group) which was purchased by Wilkie’s, the whole organisation has never really been a successful company. When you continually buy businesses, then close them down or change them so much that you lose the very thing that made them successful, which is nearly always its people, because the people make or break the business.
    Two things happen, the best people leave because they’re in demand from others in the industry, or they set up their own business and most often they are followed by their best clients. Companies deal with people who offer the best service for their business and understand their business and requirements.
    The printing industry services companies that cover the whole spectrum of running a business it’s essential that the service provided by the printing industry understands and meets their needs.
    The issues outlined in the current comments by management are exactly the same as several times before, its important for the industry to have companies listed that do make a profit and do pay share holders a dividend. Without that happening, you don’t have a business unless it reverts to private ownership. The continual woes of PMP make it difficult for other companies in the industry to attract funding from the investment world,

  4. November 24, 2017 at 9:49 am,

    Fairgo
    said:

    Spot on analysis Mr Day! Particularly the M&A observations. The only thing that makes today different for PMP is the IPMG involvement – that was never there throughout all the events you mention. The more IPMG influences PMP policy, the better.

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