09-08-2004 - Printing.com - Printing.com PLC - AM Review
In September 2000 it was Printing.com's turn to take centre stage at OFEX when the company raised £2 million at 22p. What it was doing then was pretty boldly to utilise the power and flexibility of the Internet to challenge the local print operations which are such a feature of the urban landscape - often franchised - and to do so on their own ground. The moving spirit in the transformation of the business model which this represented was one Tony Rafferty, then as now the company's Chief Executive.Printing.com has a powerful four-colour plant in Manchester, through which it aims to ensure that it can give a better product, and do so more cheaply; and the outlets which served the core unit, often deliberately, were located cheek-by-jowl by such on-demand printers. Printing.com mounts its service online; the key being the jewel in the company crown, its proprietary software. So, clicks and mortar were the name of the game as the company went hell-bent in planning to extend its number of outlets from five to forty-five, and to increase throughput per unit. Each one of these needed about £50,000 in setting-up costs. The company had hoped to clock up sales of £4.4 million by March 2001, and £9.4 million by March 2002. It expected then to lose £600,000 on the former total, and make £600,000 on the latter.
It had to be recognised that it was this new idea and the successful fund raising which gave the company a new lease of life. The previous figures had clearly indicated that the horrible conditions in the printing industry were having their effect on Printing.com as on many other small enterprises in the same line; and frankly, even if there had been no great idea, an injection of risk capital had been clearly necessary for survival, as the rising tide of borrowing costs began to overwhelm the increasingly fragile defences which were the operating profits. Full marks then for the acuity which allowed the sales-cum-software planning for the economic loading of the central production unit to proceed, and one hoped that the rewards which could accrue to the shareholders, could be delivered with the same dexterity as was shown in their seduction.
The shortfall in turnover to March 2001 was not disastrous - £3.9 million was achieved - but instead of the £600,000 indicated loss the figure hit £1.2 million - a major setback. It was not bereft of interest that the failure of sales to meet target was said to be due to the weakness of the traditional business not the new. The proudly restored liquid position had been seriously eroded afresh of course, and post the year-end the company had needed a £300,000, 18p injection. But Printing.com reckoned that if it marked time on the opening programme, the new money would carry it through to cash break-even, its up-front optimism giving more force to its arguments than many, based as it was on lively performance of its units.
An AGM statement reported that sales over the summer period had been at an all-time high with all stores showing a strong increase in sales; the newly-opened London outlets attracted special mention, and an affinity deal with Arsenal Football Club helping distinguish the business clearly from the herd - it hoped. More to the point, it was stated that the first strategic objective of the business plan, a level of monthly sales which would generate profit was now being achieved.
There had been no sign of any easement of conditions in the printing industry anyway, and it is not a sector generally supposed to be immune from any marked downturn in economic activity. Again, companies facing challenges quite often see the world in a manner which gave rose-tinted glasses a bad name. The name of the game is high risk. And yet the response to dire trading conditions, imaginative use of new technology coupled with forward-looking investors forms the corps of the wealth-generating system. One hoped very much that Printing.com burst through to establish itself as a profitable business. It was certainly an active one and supporters did not lack information as the year wore on; but in April 2002 the barrage of news having ceased, over the top went the directors; the objective was another £750,000 to be subscribed at 20p, the lists allowing another £500,000 to be garnered at the same price if demand existed. The share price, suspended at 29.5p fell 6p on return to trading.
News from the front was that £1.1 million had been raised.
But a decisive and beneficial change had taken place in the shape of franchising arrangements There followed the March 2002 figures clocked up a near £800,000 loss, but by the time that the figures were there were indications too that the expanding company was now trading profitably. And, making a £500,000 to March 2003, and just under £1 million to March 2004 as it did, so closed that chapter.
It was August of the same year when Printing.com quit OFEX to alight on AIM raising less than £1 million - for less than 10% of the equity - at 30p. By that time the number of franchised stores, 14, exceeded the owned outlets; moreover there were 57 of what the company calls "bolt-on" franchises, where established businesses with broader trading profiles are licensed to utilise the system and the brand. Burgeoning sales at high margins are the reward for a system which both eases pressure on capital needs and insulates the core from
underperforming units.
Research Standing
The company's merits are recognised in its share price, a share price which may well go higher when trading on AIM commences. But with early-stage outlets still, inevitably, engaged in growing their sales; with the prospects in the UK of tripling the total number; and with plenty of spare in-house capacity, Printing.com could and should continue to grow its earnings fast. A dividend is promised too.
The real question, which the prospectus cannot answer,is this - are the franchisees happy? Because if they can make a good living, the business model exerting ever more beneficial pressure on the centre, is capable of constantly exceeding expectations. Just look at AIM-quoted Domino's Pizza to see what can be achieved when that often-promised but seldom realised ideal, that of a virtuous circle, is attained - and keep your fingers crossed.