M2 Digital predicts brighter prospects despite losses

OLD Trafford-based managed print services firm M2 Digital saw its pre-tax losses widen in the year to March 31, 2011 as its sales fell back by 5% to £29m.

Accounts for parent company M2 Smile show that pre-tax losses (including rolled-up interest) widened by 18% to £1.3m, from £1.1m a year earlier. Earnings before interest, tax, depreciation and amortisation (ebitda) fell by 27% to £1.9m.

Co-founder Peter Quinn, who moved to the post of executive chairman earlier this year when former managing director John Taylor became CEO, told TheBusinessDesk.com that the firm was in a period of transition, as it moved away from selling photocopiers and printers towards providing more added-value managed print services.

“We’ve been investing in the business and that’s reflected in the numbers. We’re building for the future, really.”

For instance, he argued that the firm had a one-off spend of £700,000 in a new software system that will automatically seek printers and copiers connected to a company’s IT network and report on how many copies they are producing. Such monitoring of equipment and its usage can help to save corporate clients significant sums, Quinn argues, with print costs equating to up to 3-5% of some firms’ total spend.

“We recently won a contract with Balfour Beatty, which has 3,700 devices across the UK and no-one was monitoring them.

“Now they’ve been made aware how much is being printed from each machine, who is printing too much and who is using scanners rather than printing.”

Quinn said the change meant that it received fewer upfront payments for equipment but greater long-term revenues as companies signed up to longer print contracts.

This meant it expected sales figures to weaken in the year to March 2011 and only marginally improve in 2012. However, it then expects to build on recurring revenues and for numbers to dramatically increase in 2013 and 2014.

“We’ve sat with our investors and explained this.”

The company is majority-owned by private equity firm ECI Partners, which invested £12m for a majority stake in the business in 2006. Its long-term debt pile increased by £1m to £23.8m by its year end. Its liabilities also outweigh its assets by £6.5m, up from £5.3m in 2010.

Quinn said that since its year end, M2 Digital had landed a number of major managed print services contracts including a 10-year deal with insurer Prudential – a contract length that is “unheard of in our industry”.

It has also recently landed a seven-year deal with facilities management giant Compass and a deal with Manchester City Football Club.

“We are a Manchester company, but 52% of our devices are within the M25 area. That’s something we’re quite proud of.”