The restructuring of Polestar paves the way for the 2016 to become “a transformational year” for the business.
The business has emerged from a prepack administration with interest and rental payments slashed and much reduced indebtedness; with access to a further £6.9 million of cash available and in a position to implement greater production efficiencies.
Administrators from PWC have endorsed a ‘viability statement’ that has been based on a five-year business plan looking at the difference for the business looking at its position immediately before and immediately after the sale.
It states: “A restructured business will revive confidence in suppliers and customers, allowing the group to realise its growth potential and be an attractive employer for its staff.
“The restructured group will operate its printing presses at greater production capacity, building on existing customer relationships to increase orders while maintaining high quality and deliverability. There will be a focus on minimising paper and materials wastage to reduce costs and overheads.
“The boards of the companies anticipates developing innovative products with customers and maximising opportunities to increase revenues.”
The action has been endorsed by the Pre Pack Pool after being approached by Proventus Capital Partners CEO Daniel Sachs, which found nothing unreasonable. Coghlan states: “I express no opinion on whether Prospect Bidco Limited (the vehicle that bought Polestar) is, or will in the future remain a going concern. That is a matter for Daniel Sachs. Neither do I express an opinion on any decision of the administrator of Polestar UK Print Limited to enter into a pre-packaged sale. That is a matter for the administrator.”
Customers and suppliers have had little more than a week to respond to the administration, which came with little warning. For commercial reasons none was told of the impending restructuring. News of a business review was leaked just before Christmas, leading says PWC to an immediate 32% drop in commercial work inquiries. It does not say how this would compare to the same week in a normal year.
There is no doubt that as the report to creditors states: “the leaked report created significant uncertainty and speculation concerning the group”. It led to the full acquisition by Proventus Capital Partners, which agreed to provide £11 million of funds as working capital.
By February the group was once again facing working capital problems and PWC as to prepare a report outlining the insolvency options. “We undertook negotiations for a sale of various elements of the group in anticipation of the appointment of an administrator.”
The other options were ruled out, including advertising the business for sale, because these would have created greater uncertainty and led to a draining away of supplier and customer confidence.
A report on the value of the tangible assets, including the presses, put the in situ value at £35.6 million, while another judged the enterprise value of the three affected businesses (being the Polestar Group, Bicester separately and publisher River Group) to be £46.1 million. In the event, the business was sold for £65.4 million.
This results in a steep shortfall for Proventus and Barclays, the secured creditors, who were owed £131 million. Unsecured creditors are also facing a bath.
Currently all employees have transferred to the new business and existing contracts are to be honoured at the existing rates. If the revived company is planning to do things differently in order to grow the business, increased margins will need to come from elsewhere.
Better utilisation of equipment will one area of focus. Part of the blame for the administration has been laid on the investment in Goss presses for Sheffield. “The delivery and installation of these presses was delayed and upon installation had a significant detrimental impact on the trading performance of the business. The financial implications of this are estimated to be in excess of £15 million and created significant cash pressure across the group,” says the administrators’ report.
Polestar’s statement goes further saying that the combination of prepress, presses and finishing “was unable to reliably produce work at an acceptable standard due to defects. These were so fundamental and extensive that 24 significant defects were identified, ranging from metallic faults, software construction and design issues that took many months to resolve at significant cost and repetitional damage to Polestar”.
While this bears the brunt of the blame for the administration, the new company will not be pursuing the participants in the Sheffield turnkey project. This is understood now to be operating correctly. Any compensation that results from insurance claims or litigation will be to the benefit of creditors rather than to the new business and will be up to administrators to chase.
The new business is structured around six production sites and three offices. A new board includes Sachs along with investment directors Henrik Bjerklin and Anders Thelin. It also includes Hans Carlsson, former managing director of Tryckinvest, a Nordic web offset and gravure printer subsequently sold to Quebecor, and John Ashfield, long time sales director of Polestar and its precursors.
The company, says chief executive Barry Hibbert, is now positioned to take advantage of the shrinking market with the “most modern printing facilities and unrivalled finishing capabilities in the UK”. He believes that the rate of industry contraction is slowing, providing the opportunity for Polestar to regain long term a sustainable level of profitability.
Polestar has blamed problems in the high volume web offset project at Sheffield for creating huge costs and damaging the reputation of the business, but any litigation or claim for compensation will now be the responsibility of the administrator.
