Writtle 2011 half year trading report and interim dividend announcement
Result and dividend
Writtle has continued to make good progress in the first half of 2011. First half turnover was £23,117,342 (2010: £16,905,786) which included £2,552,788 from Arken POP International in their first four months trading following Arken’s acquisition on 28 February 2011. Profit before tax increased to £1,181,222 (2010: £691,929) and the company will be paying an interim dividend of 2.25p per share (2010 : 2.00p) on 28th October 2011 to shareholders on the register on 15th July 2011.
Given the continuing uncertainty in the UK and World economies, this is a further satisfactory result and I am pleased to report that all Group companies were profitable in the period. Rather than give individual company reports, I have selected some of the highlights from the first half for your interest.
Company review
Acquisition of Arken POP International Ltd.
The acquisition of Arken on 28 February 2011 provides the Group with a permanent POP design and manufacturing base to complement our existing and very successful promotional POP business. The Arken business is well known to your directors and its acquisition completes a lengthy negotiation with the vendors. Early indications are that our patient pursuit of Arken has been vindicated with the business quickly returning to profitability under a revitalised management team, and some significant new business wins have followed. The challenge at Arken now is to reinforce its management and capacity as the business gears up for further growth.
Expansion into Asia
Following a new business win for a global DIY chain, Magnet Harlequin has opened an office in Hong Kong to mirror its UK operations. This has been a significant investment and after a lengthy start-up process the business has now gained traction and is at capacity, necessitating a move to larger premises which is planned for October. The new larger office will provide a ‘hub’ for the Group’s Far East activity and Less Packaging will be joining Magnet Harlequin in the office complex before the year end as it expands its packaging reduction offer to include compliance and sourcing.
Organic growth
Writtle had ten operating companies at the end of June 2011. It is worth remembering that four of these (Creo Retail Marketing, Maglabs, Interact and Less Packaging) began life in Writtle as start-ups but are now well established and successful businesses in their own right. Start ups take time and invariably incur early losses but ours have thus far demonstrated substantial growth in shareholder value.
Acquisitive growth
Arken is already proving to be a successful Writtle acquisition. Our acquisitions fall into two categories; turnaround or enhancement. Arken falls into the turnaround category, being loss making prior to acquisition. Our most successful turnaround acquisition to date has been Creo Print and Production and we hope Arken follows a similar path, which will again yield high shareholder returns. Our enhancement acquisition model involves taking an established business and improving its scale or profitability – or both. We achieve our goal in both acquisition models through equity incentives and empowering managements to grow their own businesses – our decentralised model. The acquisition model we are not interested in (but which is paraded in front of us by brokers on a regular basis) is what I will term the ‘Hollywood’ acquisition; high profile, often successful, but expensive companies, where the only rationale is adding ‘scale’ to an acquirer. These acquisitions are high risk; we cannot add much value and the downside risk is immense. We leave these to the publicly quoted sector.
Acquisition of Loewy Group
Although completed after the half year, most of the negotiations were completed prior. Loewy Group comprises six operating companies within our sector of marketing services. There is very little overlap with our current operations; indeed the ‘fit’ and industrial logic are remarkable. Loewy Group also fits both our acquisition criteria.
As a Group, Loewy has been unsuccessful in the past as it pursued a centralised strategy of acquisition and administration, with a large head office infrastructure. This centralised policy is common amongst media groups and has to be reversed; the costs involved far outweigh any benefits. Underneath the centre, however, there are some excellent operating companies which at the most need enhancement, through empowerment and equity incentive. It is very early days but we have liked what we have seen so far; there are some very impressive people within the Loewy operating companies.
We expect the next few months to be expensive and disruptive as we reduce Loewy’s central cost but there will be a much slimmer Loewy business, along Writtle lines, entering 2012.
Summary
As you can see from this report it has been a busy but highly productive first half of 2011. Business has remained good into quarter three and we look forward to completing a successful year.
Robert Essex
Chairman
16th September 2011