The idea that an Australian printing company could be recognised as a top-level investment stock on the ASX seems to fly in the face of industry sentiment and investor opinion. Peter George is determined to change that perception with a plan for 2019.
The soft-spoken managing director of PMP Limited, the region’s largest printing company, is determined to transform his billion dollar plus company into a debt-free profitable powerhouse over the next two years and change the financial markets’ perception of printing.
Ahead of the release on Monday of the first annual report since the merger between the Hannan-owned IPMG and the publicly listed PMP, he explained to Patrick Howard, Print21, his goal to reinforce the sound future of the company. Forecasting a solid result in line with targets, he sees the enlarged company as representative of a new, energised era for printing.
“Whilst this industry tends to beat itself up a bit, the problem was not so much what we do, as more about how many people were doing it and at what price. When I arrived at PMP [George became managing director in 2012] it was very easy to see there were too many presses chasing a diminishing pool of work, chasing the price down to unsustainable levels to get it. PMP, as the biggest, fell the hardest.
“It was time we began to value ourselves and our craft,” he said.
Since then he’s brought the company back from the brink of chaos and a mountain of debt. “We’ve had a fairly ruthless and relentless six years of getting the place in order. Of getting ourselves in a position where we could negotiate this consolidation, which has always been part of my strategy,” he said.
He was more than ready to seize the opportunity when it came. Following what he describes as “a price war as vicious as anything I’ve ever seen,” he met with Michael Hannan, owner of IPMG, over coffee in Double Bay two years ago and between the two print professionals the genesis of the transformation was born.
At the time the heatset web sector was cannibalising itself as printers slashed prices to below cost in order to retain volumes as overall demand fell. In the frenzy of price cutting for catalogue and magazine heatset web print prices fell from 2012 by around $500 per tonne. While the overall market remained at some 400,000 tonne per year, there was very little profit for the producers. The situation was obviously untenable and the industry was constantly under the shadow of vulture funds at home and abroad looking to pick off the weakest.
The merger between PMP and IPMG proved to be the catalyst for a reduction in the number of printers in the sector from five to two. The largest tectonic shift in the printing industry has now allowed for the potential of market discipline and the creation of stable profitable companies. (For those who came in late… IPMG merged into PMP while AIW and Franklin Web merged into Ive Group.)
Of the two publicly listed entities, PMP at $1.2 billion is almost twice the size of the other and enjoys a similar gap when it comes to press capacity. With $430 million in heatset sales it claims 55% - 60% market share, producing print out of its four sites; Warwick Farm, NSW; Clayton, Victoria; Geebung in Queensland; and Bibra Lake in Western Australia.
PMP owes its much larger footprint and revenue not only to the amalgamation of the two biggest printing companies, but also to the diversification of its businesses that includes Gordon and Gotch, which at $430 million is the monopoly magazine distributor on both sides of the Tasman. It also has a $40 million plus digital division, an $80 million letterbox distribution business as well as, at $430 million, a very profitable New Zealand printing business.
According to George, in the four months since the creation of the ‘new’ company, most of the heavy lifting has been done. Swallowing one-off merger costs of around $75 million he is predicting $55 million in yearly savings. Three print sites were closed and 350 full time jobs were lost. Older presses were retired leaving the current fleet with average age of 11 years and configurations that range from 16 pages up to the sole 96-page web press in Australia.
It wasn’t all smooth sailing. The loss of a couple of headland contracts, namely Coles Catalogue and Pacific Magazines, was expected (Coles didn’t want to be with the same printer as Woolworths, while Pacific was uncomfortable being in the same position as Bauer). On the other hand over $130 million in long-term contracts have been re-signed to reinforce the business’s #one market position.
In terms of integrating the two companies George maintains it’s gone as well as could be expected. At a shareholder level the Hannan family are the largest single holder with more than 30%; at board level he has Michael Hannan and Steven Anstice from IPMG, while in operations the digital division is under Kevin Slaven with Adrian O’Connor taking on the role of print honcho.
Both companies are heavily unionised with members of the AMWU, which George credits with being a cooperative partner in the process.
The re-engineered company is a long way from when George first took over the reins. “When I arrived, PMP was riddled with debt. Riddled with operating problems, with customer relations problems. The share market didn’t like us, the banks didn’t like us, and even the trade press didn’t like us. We were totally friendless on the brink of some fairly painful futures,” he recalls grimly.
George is now focused on the endgame, which in this case kicks in around 2019. By then he expects PMP to be generating the same $1.2 billion revenue, but with an increased margin (EBITA) of around $100 million. That will translate into a solid 20% return on capital and remarkably for a company of that scale, there will be no debt. In his eyes that makes it into a blue-chip investment property.
In an industry that constantly battles the perception of being a rust bucket and part of yesterday’s technology, it is a remarkable achievement. It’s something all printers should take some pride in.
Read the full interview with Peter George in the next issue of Print21 magazine.