St Ives still struggles with market activation division

International marketing services group St Ives provided a pre-close trading update on Thursday, ahead of the announcement of its results for the half year to 27 January, which will be released on 7 March.

The London-listed company said revenue for the strategic marketing segment for the half year was expected to be approximately 9% above the equivalent period in the prior year.

Excluding the effects of acquisitions and currency movements, like-for-like revenue was expected to be broadly in line with the prior half year.

“As previously reported, we experienced a number of project cancellations and deferrals in the last quarter of the previous financial year, which have also impacted revenue growth and operating margin within the first half of the current financial year,” St Ives’ board said in a statement.

“We remain encouraged by the progress that has been made to replace the cancelled work.

“However, this process is taking longer than previously anticipated, and it is unlikely that we will see the full benefit of the new work we have won until the final quarter of the current financial year.”

Within its books business, revenue for the first half was expected to be about 13% above the prior half year.

Trading during the pre-Christmas period had been generally positive and was particularly helped by the two recently published J.K. Rowling titles, the board said.

Conditions within the company’s marketing activation segment continued to be very challenging, however, due in large part to the ongoing pressures within the grocery retail sector, the segment's largest single market.

The board said it expected the rate of revenue decline to have reduced in the first half of the financial year to approximately 2% - compared to a 7% decline in the previous full financial year - although the pressure on operating margin increased.

“Diversification of the client base to reduce this segment's dependency on the grocery sector remains a priority and we have secured a number of new client wins in the half year, although at lower margins than historic levels due to the increasingly competitive nature of the market.

“Due to the increased pressure on operating margins we have initiated further cost reduction measures within the segment.”

The board said the benefits of those actions were expected to come through in the final quarter of the current financial year.

“As a result of the above, the board now anticipates that the out-turn for the full financial year will be materially below its previous expectations with the majority of the shortfall due to the pressures within the Marketing Activation segment.

“The board remains confident in the long term strategy currently being pursued, and in the growth opportunities open to the group.”

It said the company’s balance sheet remained sound, and it was retaining the necessary cash flow capabilities to support its investment priorities and to further reduce debt.