It’s time to dust off an old chestnut: ‘How do you make a small fortune in print? Start with a large one.’
For Goodhead Group’s former owner Sir John Madejski, the joke has become a horribly serious reality. Five-and-a-half-years after the man he appointed to run the group, David Holland, outlined a five-year plan to turn the business into the UK’s biggest web offset printing site, Sir John’s fortune has been reduced by some £100m and ownership of his print venture has passed to Polestar and its owner Sun European Partners via a complex pre-pack arrangement.
Why did Sir John decide enough was enough now? Losses were further reduced – to £2.7m – in Goodhead’s latest financial results; however, it seems trading post-May hadn’t met expectations of further improvement.
"We’re all banging our heads against a brick wall," Sir John says. "Consolidation in the market is the name of the game. The company is going to carry on and the most important thing is saving more than 500 jobs.
"Lots of plans five years ago were the right plan, and our plan was visionary. But sadly nobody forecast the severity of the big downturn and what’s happened since then," he adds.
Now, with Goodhead Group in administration, the trade and assets of BGP Bicester and Stones the Printers in Banbury have become part of Polestar, with the two operations rebranded Polestar Bicester and Polestar Stones. And as a result, in the space of less than two years, we have gone from having a ‘big four’ in web offset, to a ‘big two’, with Polestar the biggest web printer in the UK.
Things could have worked out differently. It was obvious that Walstead Investments, the owner of Wyndeham Group, would be among the potential buyers contacted by KPMG. Perhaps surprisingly, Prinovis is also known to have looked at Goodhead during the accelerated sale process that took place over the past few weeks.
One print buyer says he would have preferred Prinovis to have taken over Goodhead, in order to avoid an effective web duopoly for high-volume weeklies and mainstream monthly glossies.
This buyer is also among those who believe the deal is bad news for Wyndeham, despite chairman Mark Scanlon’s public pronouncements many months ago that further consolidation and capacity reduction in web offset was needed, and Wyndeham was a bit tired of being the only player taking any meaningful action (he even went so far as to describe competitors as "supine").
Fellow Walstead director Stephen Hargrave reiterates the group’s position in genuinely welcoming last week’s sale. "We were invited to
make an offer for Goodhead and we looked at the books. It wasn’t for us, and we did not make an offer," Hargrave says. "We’re very happy Polestar has bought it and we trust this marks the return of sanity to the sector at last."
Hargrave isn’t alone in hoping for sanity following a protracted period of web offset madness. So what happens next? Polestar is remaining tight-lipped for the time being, citing confidentiality agreements. Will it keep Stones, or should we expect an MBO there?
And while Sir John has stressed the importance of saving all the jobs at Goodhead, it’s obvious that some roles will be surplus to requirements in the wider Polestar structure, especially in sales and management, notwithstanding the potential job losses elsewhere as Polestar must surely use this as an opportunity to rationalise its web facilities. Ambitions to set up a web offset supersite next to the Sheffield gravure facility remain on the cards, and gaining a ready-made modern web facility at BGP could be the stepping stone to achieving it.
Also yet-to-be-confirmed is whether Sir John has swapped his personal guarantees for a stake in Polestar Print Holdings, the vehicle used for the acquisition. Creditors without such guarantees will be among those picking up the pieces from Goodhead’s administration, and while the extent of the group’s bad debt is yet to emerge it could be as much as £12m. And The Pension Protection Fund will need to adjust its levy to encompass yet another failed print pension scheme.
Further contraction
Other web offset printers are, naturally, watching intently too. Walstead’s Scanlon predicts a polarisation of the sector: "This marks another important stage in the rebalancing of supply in the web offset sector to address a shrinking market. I have no doubt the contraction will continue. In response, the supply side will polarise: the remaining two large multi-site groups – Wyndeham and Polestar – will be able to provide resilient and long-term service for publishers and print buyers; the mid-sized operators will flounder; and the smaller players will specialise."
Unsurprisingly, this view is not shared by those currently occupying the middle ground, and Alex Evans, managing director at Precision Printing in Telford, responds: "Personally, I believe this will strengthen the middle tier of web companies over the course of the next few years. The mid-sized operations, such as PCP, will remain profitable, providing stability supported by realistic capital investment to their suppliers and clients in the future."
Goodhead clients, meanwhile, are thus far remaining tight-lipped on events but it’s obvious there will be some "interesting" conversations as a result of Polestar’s takeover. Northern & Shell, for example, moved work from Polestar to BGP on price and now finds itself a Polestar customer again. Awkward. And Polestar does not have to honour the existing contracts it has inherited. Polestar has already been through the Goodhead books with a fine-toothed comb. "There will be lots of hens coming home to roost if people have been blagging about pricing," noted one observer.
Buyers must surely be braced for web print prices to go up, because a return to the sort of price war instigated by both Polestar and BGP in the past would also require the dusting off of another old chestnut: "What’s the definition of insanity? Doing the same thing again and again and expecting a different result."
GOODHEAD: WHAT HAPPENED WHEN
March 2000 Majority shareholder John Madejski wants to delist the profitable Goodhead Group PLC and take it private, and makes 67.5p per share offer for the outstanding 35.2% of shares. The deal values the group at £27.3m, is accepted, and in June Goodhead is delisted
August 2004 BGP is at maximum capacity and buys a Manroland Lithoman IV for installation in 2005
January 2006 BT moves printing of its Phone Book abroad for the first time in the product’s 126-year history. BGP Colchester loses the contract to Spain’s Einsa, on price, with just three months’ notice
February 2006 Madejski appoints David Holland as deputy chairman
March 2006 Managing director John Cooling, finance director Nick Newland and Stones the Printers managing director Simon Hunt leave. Holland says he intends to keep BGP Colchester open
January 2007 Holland announces that Colchester is to close, after all
March 2007 Holland unveils five-year-plan to create £25m web offset supersite at Bicester, including two more 72pp Lithoman IV presses. The new Lithoman from Colchester is also moved to Bicester
August 2007 Geoff Hughes and Steve Palmer return to the group
November 2008 Sales director Bob Caley tells PrintWeek BGP is the only web offset printer in the UK with a "sustainable business model"
December 2008 Refinances £32.4m of debt as Madejski funds debt-for-equity swap. Bob Caley leaves
January 2009 Madejski is knighted in New Year Honours List. Posts 2007/08 results: pre-tax loss of £18.3m on sales of £46.1m. Operating loss is £7.8m
February 2009 Announces 60 redundancies at BGP as two older webs, a 16pp and a 32pp, are decommissioned
August 2009 In a BBC4 documentary Sir John says he has too many businesses, some "burning cash like there’s no tomorrow"
September 2009 Industry amazement as Colin Rosser, the former Goodhead chairman and chief executive who was dismissed in 1993 and subsequently sued for breach of contract, returns to the group as a non-exec
October 2009 Madejski says BGP is "not for sale"
June 2010 Posts 2009 results after protracted delay, showing bottom-line loss of £18.7m on sales of £65.9m. David Holland says the business is now "self-supporting" and will be in profit by turn of the year
November 2010 Posts results for year to May 2010 promptly. Operating losses are cut but are still £7.8m. Madejski loans the group a further £10.8m
December 2010 Madejski writes off his £24m investment in Sackville Developments (Reading)
January 2011 BGP appoints its first full-time finance director
February 2011 BGP managing director Geoff Hughes is made redundant
May 2011 Redundancies made in commercial team after large contract wins
July 2011 Second Ferag stitching line ordered, taking Ferag spend to around £6m
November 2011 Expected financial improvement does not materialise. Holland blames snow-based disruption and the arrival of new contracts. Group sales are £68.5m, but BGP makes a pre-tax loss of £8.7m. Madejski injects a further £3.4m and converts a separate £3.9m liability into a loan
January 2012 Goodhead Group employees are asked to take a pay cut of "more than 10% but no more than 20%" in order for the business to continue as a self-supporting entity. Madejski announces he is selling 51% of Reading FC to Russian billionaire Anton Zingarevich for £40m
February 2012 Employees vote overwhelmingly in favour of a 13.5% pay cut. David Holland says he will personally take a 20% cut.
April 2012 Madejski is ranked 501st in the Sunday Times Rich List with £150m
August 2012 BGP buys the ex-Jarrold Printing Komori System 38 16pp cover press
September 2012 Goodhead Group dramatically reduces its losses in its results to May 2012. Sales slip slightly to £67.8m while operating losses reduce by 61% to £2.7m. The pension deficit is at least £10.3m. Holland says break-even is "more likely to be during 2013 than in the 2013 financial year". The shareholders’ deficit is £39.6m and Madejski’s total investment is put at £100m
October 2012 BGP wins PrintWeek’s Consumer Magazine Printer of the Year Award and David Holland surprises everyone by retiring, with immediate effect. Madejski agrees a deal for Holland’s stake in the group
November 2012 PrintWeek reveals that Goodhead Group has been put up for sale by Madejski. Polestar and its owner Sun European Partners are in exclusive negotiations to acquire the business. Goodhead goes into administration and is sold in pre-pack to Polestar, five weeks after Sir John thanked David Holland for "turning the business around"
READER REACTION
Nick Alexander Group chief executive Garnett Dickinson
My immediate thoughts were for Sir John Madejski. I feel very sorry for him, he’s been committed to the sector for years and he’s invested an awful lot of money and had to give it up. The second group that have my sympathy are the pensioners. Beyond that, it’s just too early to say whether this is a good or bad thing."
Stephen Denbigh Managing director, Artisan Press
This is a long time overdue. I hope it brings sanity back to the industry and hopefully the reduction in capacity will be forthcoming. I’m hoping for better things in 2013 for the web offset industry in general now it has the opportunity to get back on its feet."
Web offset printer
"Barry and his team are going to have to work hard to turn it around, and part of that is pricing."
Simon Fox Managing director, Woodford Litho
"Those were very clear and welcome comments from Mark Scanlon. My interpretation of his position is ‘don’t come back here waving your old BGP contract’. It is also clear that after a period of plant rationalisation, which may well happen swiftly, the top management at Polestar will be expected to deliver."
Alex Evans Managing director, Precision Colour Printing
BGP’s demise is not a surprise to many within the industry and the prediction that the ‘big four’ would reduce to two has been well founded. Over the years there has been overcapacity resulting in too many web printers offering unsustainable prices which cannot be supported. Only when the web offset sector practises realistic pricing supported by prudent, honest and sound management will the industry fulfil the financial indices that it needs."
Goodhead creditor
I’m angry that no one will take responsibility, it’s all someone else’s problem. No one feels culpable for the trashing of value."
John Cooling Former managing director, Goodhead Group
I hope the new owners will find a positive solution for the company. It’s time to answer the question I have been asked many times by many people, and the answer is: ‘yes, I did tell him so, but he wouldn’t listen.’"
Print buyer
"I’m not desperately happy about there just being two large web offset printers."
