When I saw St Ives' results yesterday, and the big
improvement in profitability therein, I thought "gosh, those high margin data
businesses must be flying". Upon closer inspection that turned out not to be
the case. More than 95% of St Ives' turnover in the last year came from print,
and 98% of the operating profit.
The improvement in underlying profitability has come
from gains on the print side, mostly in books I surmise, and is not unconnected
to the fact that the group has offloaded its loss-making web division to
Walstead. As an aside, I asked CEO Patrick Martell what sort of market price improvement
would have been required for it to have been worth keeping the web wing, and
the answer was "30%".
Anyhow, well done to the group for turning in the sort
of numbers that saw the share price go up, despite it being a day when stock
prices tumbled and the FTSE closed at a 15-month low.
Looking at the nascent marketing services wing it seems
St Ives has been afflicted with some of the same issues as Communisis. Data may be "the new oil" but it's not a matter of just turning on
a gushing tap to OPEC-levels of wealth.
In its first full year as part of the group the Occam
business posted turnover of £6.8m, whereas when St Ives bought it in 2010 sales
were £8.3m and it was making EBITDA of £2m. As the entire marketing services
division (including a six month contribution from Tactical Solutions, which
made EBITDA of £2.8m upon acquisition) posted an operating profit of just
£450,000 something has gone backwards somewhere.
The sales cycle for Occam's data services is lengthy, technical
and complex, so it really could be a case of jam, or oil, tomorrow. Martell
cites the example of a contract win with the RAC which was secured six months
ago, but for which revenues are yet to flow through. The group is also
investing in Occam in order to generate sales and build an analytics side to
the business. "We don't mind short-term investment to achieve our aims," says
Martell.
I'm not knocking the strategy, and it's going to be
super-interesting to see how the expected shift in group profitability pans out, but
activities at Communisis and St Ives should give pause for thought for anyone
who thinks the answer to all their profit prayers is "just add data".
