01-12-2006 - Printing.com - AIM Reviews - Printing.com
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 â�� 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 announced there were indications too that the expanding company was now trading profitably. And, making £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. The interims to October 2004 showed that 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 - with sales £5.5 million (2003: £4.8million), pre-tax profits of £631,000 (2003: £251,000) and EPS of 1.08p (2003: 0.42p.
A February release told of full-year figures now likely to be at the lower end of expectations - and January sales 'slightly disappointing'. But it was pleasing to see in April that the company issued a trading statement telling of robust year-end trading conditions with two new franchise stores and seven new bolt-ons under the corporate belt. Three more full franchises were under option; cash generation strong; the full-year figures expected to be pitched up to market expectations; and there is a clear indication of a maiden dividend. All of this duly happened.
A rather convoluted August AGM statement which told of franchise targets being hit, but struck a couple of dull notes in respect of general level of demand, was adjudged by the market to be, on balance, not what it wanted to hear.
In November, the company announced its international expansion plan, involving the granting of Master Franchises to established overseas commercial printers for an initial licence fee of between £170,000 and £510,000 (usually on a country by country basis), a 3% royalty on Total Retail Sales and a royalty of 20% on local sublicences. The company believes that many commercial printers have over capacity and that the Printing.com business model will be attractive to such businesses, particularly against the background of tight margins within the industry and Printing.com's ability to demonstrate the margins which it is generating.
The interim results to 16th October 2005 showed sales of £6.4 million (2004: £5.6 million), pre-tax profit of £1.1 million (2004: £631,000), EPS of 1.66p (2004: 1.08p) and DPS of 0.5p (2004: nil). The company reported that its open and pending estate rose from 119 units at 31st March 2005 to 147 at 18th November; the Manchester Hub is being upgraded at a total cost of £3.2 million to enable it to handle £45 million of end customer sales; at the period end, cash stood at £2.7 million; and the board expects growth to continue and the full year result to line with budget.
The April 2006 update re the final results to March 2006 reported that trading was in line with expectations; the expansion of the the Manchester Hub (see above para) is due to be completed by mid-Summer; based on marketing activity to date of Master Franchises (see November 2005 announcement above) , the board is optimistic about the potential of this programme.
The final results to March 2006 showed sales of £12.3 million (2005: £10.7 million), pre-tax profit of £2.4 million (2005: £1.5 million), EPS of 3.92p (2005: 2.66p) and DPS of 1.75p (2005: 0.5p). The company reported that Total Retail Sales were estimated to be £18.2 million (2005: £14.4 million) - the size of the network at the year end was 166 Outlets (2005: 119); the first Master Franchise agreement has been signed in relation to New Zealand, with the franchisee having an option expiring in March 2007 for Australia; year end net cash was £2.5 million (2005: £1.4 million); day to day trading during the first two months of 2006/7 has proved somewhat mixed across the estate.
The July AGM update reported that following the mixed 2006/7 trading referred to in the above para, trading has continued to be soft, resulting in transactional volumes being below expectations albeit still ahead of last year - accordingly, it is appropriate to take a cautious view of short term market expectations; re international development, the first NZ print orders are expected in September 2006 - a non-refundable deposit has been received for an option for Poland.
The interim results to 15th October 2006 showed sales of £6.2 million (2005: £6.4 million), pre-tax profit of £1.0 million (2005: £1.0 million), EPS of 1.53p (2005: 1.53p) and DPS of 0.6p (2005: 0.5p). The company reported that its period end estate comprised 188 outlets (2005: 145); Total Retail Sales were £10.9 million (2005: £9.4 million) - like-for-like growth was 6.8% - the company's sales decreased due to several previously owned stores having become franchises with a resulting drop in sales (and costs) reported by Printing.com; some market stregthening has been seen compared with the soft market conditions referred to in the above para.
Research Standing
We said this: "However, the real question 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."
With new outlets increasing at a greater rate than the rate of growth in the company's sales, the company needs to provide more data as to how established outlets are benefiting from the company's service .
The company broker's note dated 21st November projects EPS of 3.3p for 2006/7 and 4.0p for 2007/8 representing P/Es of 15.2 and 12.5 respectively based on the share price of 50p at 21st November - yields of 4% and 5% respectively are projected.