GRA.L Regulatory News (GRA)

14 Nov 2005 07:01

Printing.com plc14 November 2005 FOR RELEASE 7.00 AM 14 November 2005 Printing.com plc ("Printing.com" or "the Company") Specialist retail chain with over 140 Outlets (open or pending) across the UK PRINTING.COM TO OFFER MASTER FRANCHISES TO FUEL INTERNATIONAL EXPANSION Today at the IPEX 2006 Press Inward Mission Tony Rafferty, Chief Executive ofPrinting.com, will outline the Company's international strategy for expansion. Printing.com's strategy for its international roll out embraces the followingkey terms:- * the granting of Master Franchises to established commercial printers overseas at an initial licence fee of between £170,000 and £510,000; * an ongoing royalty of approximately 3% of Total Retail Sales * a royalty of approximately 20% of local Printing.com licence fees The strategy for expanding the Printing.com model outside of the UK & Ireland,is based on the granting of Master Franchises, usually on a country by countrybasis, to established commercial printers overseas. By adopting a Master Franchise, instead of setting up a wholly-owned foreignsubsidiary, each new venture should eliminate start-up losses and contribute toboth profit and cash generation from the outset of each agreement. By partneringwith an established commercial printer, with production infrastructure in place,the significant delays of, and capital costs in, establishing a national printhub will be avoided; allowing for a faster rate of lower risk internationalexpansion. It is believed that there are many commercial printers around the world, capableof producing work to the Printing.com standard, that have significantover-capacity. Such printers may be operating in the general full colour printmarket, and are probably suffering from the widely reported margin erosion, orthey may be operating within a niche market, such as, for instance, the printingof CD covers, and are now facing the challenges of declining sales.The most recent 'Print Week' survey of the UK's 500 largest commercial printers,reported that the average pre-tax profit as a percentage of turnover of UKprinters was 2.6%, compared with the 14% margin Printing.com reported in itslast audited accounts. Printing.com believes that similar market conditions maybe reflected in many other countries. Accordingly, it is the intention to market the Printing.com Master Franchise inother countries to commercial printers who are seeking to diversify. It isbelieved that the impressive growth in Printing.com's earnings and its higherpre-tax profit margins in comparison to the sector will be the 'carrot' forMaster Franchisees wishing to replicate this success within their home market.The Master Franchisees would initially be able to operate the Printing.comfranchise in tandem with their existing operations, if they so choose. Thisflexibility will enable them to generate additional revenues without necessarilyhaving to invest in additional plant. The Master Franchisee will be charged an initial licence fee in the range of£170,000 to £510,000, reflecting both the value in the grant of the licence andthe expense incurred by Printing.com in providing local support to the MasterFranchisee. Certain larger countries, such as the USA, may be developed bydividing the country into several regional Master Franchises.Thereafter, a royalty will be charged on an ongoing basis of 6% of TransferPrice (equivalent to approximately 3% of the Master Franchisee's Total RetailSales). Following the well-established UK model, Master Franchisees would have the rightto eventually grant Bolt-on and Territory Franchises in their own franchise areaenjoying the associated licence fees and paying Printing.com a royalty ofapproximately 20% of the net licence fees. In return for the fees and royalties paid by the Master Franchisee, Printing.comwould make available all of its marketing and operational methodologies andcollateral, grant a licence to use the brand and, very importantly, the use ofFlyerlink, Printing.com's proprietary software that enables the entire process.Printing.com believes, that the licence fees and royalties represent exceptionalvalue, compared with the expense that would be incurred in replicating theentire process and Flyerlink software. In addition the benefit of speed tomarket that a Master Franchise offers should not be ignored. Initially, a Master Franchisee will be required to deploy a number of key staffto the UK for a period of time until these team members achieve a definedCompetency Level: only then would local Printing.com operations commence. AMaster Franchisee must then open and successfully operate two Stores prior tothe commencement of the local franchising roll-out. It is intended that thisstructure will equip the local franchisee to operate the Printing.com businesseffectively, without prejudice to the Company's UK and Ireland operations.Master Franchisees will be selected if they can demonstrate productioncapabilities and surplus capacity sufficient to allow them to produce locallythe Printing.com product range. A Master Franchisee will also need todemonstrate sufficient management depth and financial robustness. Whilst the international strategy assumes the granting of Master Franchises toexisting commercial printers certain alternative routes may also be exploitedincluding Management Buy-Ins/Buy-Outs or local Venture Capitalists fundingPrinting. start-ups. Printing.com has already held a number of preliminary discussions with potentialMaster Franchise partners, but these discussions are still at a very early stageand may or may not progress any further. Further announcements will be made asappropriate. For further information: Printing.com plcTony Rafferty (Chief Executive) 07966 517 336Alan Roberts (Finance Director) 0161 848 5713 Beattie Financial Brian Coleman-Smith / Nia Thomas / Grace Dewhurst 020 7053 6400 This information is provided by RNS The company news service from the London Stock Exchange