News

‘Some optimism’ is the theme that ran through the BPIF’s latest Directions report, published last month. The quarterly survey of industry trends says the UK print industry believes it is in line to defy any downturn. Not only that, but many of the 91 print and print-packaging firms interviewed were expecting volumes and margins to improve during 2008.

The surprising findings come at a time of uncertainty over the stability of the economy. According to investment bank Lehman Brothers, there is a one-in-three chance of the UK going into a recession. Many believe that as print is often one of the first sectors to come out of a downturn, it is just as likely that it will be one of the first to feel the initial effect.

Andrew Brown, BPIF corporate affairs director, hopes printers’ optimism will prove to be well-founded. Although the first quarter of the year has been disappointing after the run-up to Christmas, Brown argues figures in 2007 were better than they have been for many years.

Misplaced optimism?
The report finds that the source of printers’ optimism is the fact that many are raising prices – welcome news for a market under the cosh. However, it goes on to say that most contend they are still not fully recovering all the cost increases they faced in the last quarter, or are likely to face in the coming quarter. As such, the question remains just how realistic this optimism is.

According to the report, a fall in the value of sterling coupled with the ongoing need for stable or better prices continued to make life difficult in the last quarter, as did cost increases, which printers have struggled to pass on. Furthermore, severe price cutting, either to win market share or to fill new capacity, has re-emerged.

PPL Research also prepared a report for Directions, which claimed there was a stark contrast in domestic order levels, with 47% reporting an increase while half suffered a fall and just 3% witnessed stability.

But, despite a quarter of respondents saying order books are worse than normal for this time of year, the report claims “there is an air of optimism” for the spring. It found that 43% of publications printers believe trade will improve, while 21% expect deterioration.

Cost pressures are also expected to increase, with 57% predicting higher paper prices and 23% further increases in the cost of consumables. The upshot of the forecast is that 42% believe margins will be stable while the remainder are split between improvement and deterioration.

However, some in the industry have questioned the findings. John Grogan, managing director at Leeds-based large-format printer grgprint.com, admits to having had a tough year. He argues that, within the forecasted economical decline, the fundamental problem for the print industry is overcapacity. “While the market is attempting to correct itself through liquidations,” he says, “the phoenix situation makes the problem worse.”

Concerns over phoenixes or pre-pack insolvencies, where a company goes into administration one day and re-emerges the next clear of debt, was highlighted in the BPIF’s report. It says many firms “were making a determined effort to collect payments more expeditiously”. Printers questioned said that customers were increasingly insisting on longer terms as a quid pro quo for stable and better prices. Grogan warns that if the casualties are able to resurrect themselves, the situation will be prolonged.

Crunch time
As for the possibility of recession, one industry insider said the immediate effect of this was an acute shortage of credit, therefore “borrowing money will be far more difficult”. Once again, he added, it comes back to supply and demand.

“Similarly, insuring debts will become increasingly difficult. It is known there will be casualties over the next 12 months and insurers are being particularly cautious.”

Grogan agrees, saying that raising finance for new presses “has become a practical impossibility at sensible rates of interest”. The survey found that around one third of respondents interviewed are going to Drupa, although the vast majority are going to learn as opposed to buy.

With just over two months before Drupa, Directions recorded its first negative balance (-2) for capital expenditure on plant and machinery since July 2006.
Elsewhere in the industry, Packaging Federation chief executive Dick Searle admitted recession is always a worry. He warns those pinning their hopes on playing the volume game that it doesn’t tend to work out that well. “There is a general feeling that the weaker parts of the supply chain have had enough and can’t be squeezed any more,” he says. “It’s time for some bravery. The smartest will do the best.”