Printing Industry Dynamics

1Flexo - The Pacesetter Melbourne September 2011

Print Market Dynamics and Issues Impacting the

Printing Industry

Presented by: Hagop Tchamkertenian National Manager for Policy & Government

Affairs Printing Industries Association of Australia


Presentation Overview• Industry demographics

• Industry trends

• Issues impacting on the industry

• The evolving communication dynamics


The Industry Value ChainIndustry Data for 2009-2010 period

Economic Indicator

Pulp, Paper & Converted Paper

Product Manufacturing

Printing and Printing Support

ServicesPublishing

Total Industry

Employment 21,000 50,000 49,000 120,000

Wages/salaries $M 1,459 2,246 3,199 6,904

Turnover $M 9,727 9,252 13,181 32,160

Industry value added $M 2,633 4,034 7,091 13,758

Capital expenditure $M 537 676 513 1,726

Number of establishments*

225 7,064 2,879 10,168

Number of employing establishments *

126 4,240 1,364 5,730

Imports $M 2,916 1,027 815 4,758

Exports $M 996 314 230 1,540Source: ABS * 2008-09

Industry demographics


State Breakdown of Printing• A breakdown of printing industry shows that it is concentrated in the east-coast• The 3 main states of NSW, Victoria and Qld account for 86 per cent of industry sales, employ 84 per cent of the workforce and pay 84.2 per cent of the wages and salaries

Source: ABS

Industry demographics


•Three consecutive quarters of reported growth •Last 2 quarter growth rate trending down•June 11 quarter outcome is 20.4 per cent lower than reported outcome for June 08

Industry trends


•Printing very volatile compared to the Australian economy •Australian economic growth has been flat past 3 quarters•Major performance gap during the period of the GFC•Stimulus measures clearly did not help the printing industry

Industry trends


•Sales are showing tentative signs of recovery •Last 2 quarter sales growth has been very modest•June 11 quarter outcome is 21.4 per cent lower than reported outcome for June 08

Industry trends


•New capital expenditure has been very weak in recent quarters• Investments were brought forward to access the government’s investment allowance during the GFC• June and September 2009 quarter surge due to the investment allowance

Industry trends


•Trade in printed matter has been trending downwards in recent times•No evidence yet of appreciating Australian dollar impacting on trade patterns •Structural demand issues likely reason why trade has not recovered to pre-GFC levels

Industry trends


•Production and sales volumes have been volatile in the post GFC period•Despite the deteriorating trend, the respondents continue to remain positive about prospects

Industry trends


•The most recent survey shows increased idle capacity•48 per cent of survey respondents reported to be operating at capacity levels of 70 per cent or more• Idle capacity is another reason for the weak investment outcome

Industry trends


•Difficult economic conditions has elevated the significance of lack of orders•The other category represented by the white area was made up financial constraints•Labour not a major constraint but firms still vulnerable in skills area

Industry trends


•Difficult economic conditions has elevated the significance of lack of orders•The other category represented by the white area was made up financial constraints•Labour not a major constraint but firms still vulnerable in skills area

Industry trends


•After a period of weak sentiment, capital expenditure intentions are once again positive•The modest nature no doubt is being influenced by industry idle capacity

Industry trends


•Selling prices have trended downwards for 42 consecutive quarters•During the past 5 years there have been 8 occasions of positive selling price expectations•Sadly non have eventuated•Currently expectations are also negative

Industry trends


•Industry margins continue to come under pressure•With selling prices falling improvement in margins need to come from cost savings and efficiency gains•GFC seems to have made things even worse

Industry trends


•Recent period has been characterised by a distinct moderating trend•The cause of the moderation is likely to be the $A•Given material costs can vary between 35 per cent to 50 per cent of overall operating costs, this is a welcome development

Industry trends


•Other than the March quarter reported outcome, recent period has been characterised by an upward trend•With wages representing the second largest operating cost component, developments here have serious ramifications for margins

Industry trends


•The past 5 years has seen deteriorating employment •The GFC impact is clearly visible by a distinct u-shape•Most recent quarter more companies reported falls in employment relative to those reporting increases•Employment prospects also remain subdued

Industry trends


•On all economic indicators the emerging sector – digital printing has outperformed the established sector – offset litho•The emerging sector is more profitable, enjoys sales growth and is driving the new investment in the industry

Industry trends


•Emerging sector is also reporting more capacity utilisation than the established sector•This means the established sector is facing serious structural issues as in normal conditions new/emerging sectors tend to report more idle capacity•Maybe the time has arrived to view digital as a established sector

Industry trends


Issues impacting on

the industry


Issues impacting on

the industry


Regulatory framework•Carbon Tax – indirect cost impact• ETS – possible uncertainty and increased coverage of industry• Workplace Relations – less flexible• Superannuation levy increase to 12%

Issues impacting on

the industry


Issues impacting on

the industry


Issues impacting on

the industry


Issues impacting on

the industry


Issues impacting on

the industry


Red Issues:• Price competition• Commoditisation of print• Idle capacity• Price competition from imported print• Shift from hard copy to soft copy• Reduced volume • Poor cash flow management• Increased bad debts• Lack of management skills

Issues Facing Australian PrintingGreen Issues:

• Lack of investment in training• Pace of technological change

Orange Issues:• Environmental perceptions of industry• Lack of government support• Volatile sales• Poor image of industry amongst school leavers• Skilled labour shortages• Lack of succession planning • Increasing operational costs – energy• Accessing finance• Difficulties in attracting and training apprentices• Moving beyond “ink on paper”


The evolving communication dynamics

It took more than 100 years for the number of users of print toreach 50 million.On the contrary:• It took radio 38 years to reach 50 million users.• It took television 13 years to reach 50 million users.• It took the Internet 4 years to reach 50 million users.• It took the iPod 3 years to reach 50 million users.But then:• Facebook added 100 million users in less than 9 months.• iPhone application downloads hit 1 billion in 9 months.• The number of Ashton Kutcher’s1 and Ellen DeGeneres’2Twitter followers exceeds the entire population of Ireland,Norway, and PanamaSource: Disrupting the future Joseph W. Webb, Ph.D. and Richard M. Romano




Source: Disrupting the future Joseph W. Webb, Ph.D. and Richard M. Romano



Source: PWC

•Some traditional media are growing and are forecast to continue to grow•But because the growth rate is much lower than “emerging media”, their share of total advertising expenditure continues to fall•Printing businesses that rely purely on traditional forms of media face weak growth prospects•Those targeting all media have better growth prospects



Source: Ofcom

•There are great variations in advertising spend•Magazine spending accounts for 15% in France to a low of 7% in Japan •Newspapers have the largest share in Germany (36%) and lowest in Japan (17%)•Internet share ranges from 10% in Italy to a high of 27% in the UK•Australia’s media expenditure profile mirrors that of Canada



“QUOTE AND HOPE”

COMMODITY PRINT – ALL CUSTOMERS EQUAL

SALES REPS RULE

COMPLACENCY

LONG RUNS, SAME STUFF

USE WEB FOR AWARENESS

“OFFSET QUALITY DIGITAL”

GET AHEAD OF OPPOSITION

NARROW CRAFT-BASED SECTORISATION OF PRINT

FIXED DATA OFFSET

LAST CENTURY

THIS CENTURY

FAR FEWER ESTIMATES

VALUE-ADDED PRINT – BUILD RELATIONSHIPS

CRMs RULE

EAGERNESS TO CHANGE

SHORTER RUNS, VARIED

USE WEB FOR EVERYTHING

DIGITAL VALUE BEST

GET AHEAD OF CUSTOMER

OFFER TO PRINT ANYTHING INHOUSE OR OUTSOURCED

VARIABLE DATA DIGITAL



Thank You For Your Attention

Hagop Tchamkertenian

National Manager for Policy & Government Affairs

Printing Industries Association of Australia

[email protected]: 0414 953 271Ph: 02 8789 7361

Printing Industry Dynamics

Business

cent of industry sales

prospects industry trends

breakdown of printing

abs industry demographics

skills area industry

total industry employment

pregfc levels industry

quarter outcome