The Year in Review
For most ink manufacturers, 2007 was a good year, although there remains much uncertainty regarding raw material costs and consolidation among printers. Meanwhile, a number of new leaders took the helm during the year.
By David Savastano
New Leaders Profiles:
Charles Knott – Flint Group
Geoff Peters – Wikoff Color Corporation
John Copeland – Toyo Ink America
Jörg-O. Seeger – Hostmann-Steinberg, Inc. USA
However, ink industry leaders report that 2007 is an improvement, despite even harsher raw material prices increases, as crude oil nears $100 per barrel, and pigments and intermediates lost their value added tax (VAT) subsidy from China. For ink manufacturers, one key has been the ability to pass along most of the price increases they receive rather than internalize the price increases.
In an important move, Charles Knott joined Flint Group as CEO in September, having successfully led and developed global speciality chemical companies within ICI plc and Unilever plc. He succeeded Dave Frescoln, who was named deputy chairman of the company. He reported that Flint Group enjoyed good results during the past year.
“Overall, 2007 was a good year for Flint Group, particularly as we continued to expand our portfolio of offerings to the graphic arts industry,” Mr. Knott said. “The acquisition of Day International in May allows us to offer our customers a much more comprehensive range of pressroom consumables, and brought some very talented and knowledgeable people into the Group. The company enjoyed organic growth that paralleled trends in the market. Our strongest increases occurred in emerging regions, including Latin America, and in the packaging and UV print segments.”
“For Siegwerk, the year 2007 is positive up to now,” said CEO Herbert Forker. “Internally, we have made some great efforts in terms of integration of our acquired companies on a worldwide scale, which will be finished by the end of the year. Externally, the acquisition of the new Siegwerk India was a very important element of our Asia strategy. Now, Siegwerk is able to fulfill the customers’ needs all over the world.”
Siegwerk USA continued to grow in flexible packaging and labels, said Daniel McDowell, president NAFTA, Siegwerk. “The integration and restructuring phase will be finalized between Siegwerk and SICPA PIBU within the NAFTA region by year end 2007 and we look forward to enhancing our market offers,” Mr. McDowell added. “The marketplace continues to view the Siegwerk and SICPA PIBU merger as a positive addition to the ink supplier portfolio.”
George Sickinger, chairman, president and CEO of Color Resolutions International (CRI), noted that the company enjoyed double-digit sales increases in 2007, mostly based on its new markets and international operations.
“Sales to current customers were largely flat with 2006,” Mr. Sickinger said. “Our growth came mostly in new sales in the U.S. and Mexico, and most of the advances were in new markets to us such as flexible packaging, label, pouches and some non-traditional markets.”
Daryl Collins, vice president – national sales and regional operations for Wikoff Color, noted that Wikoff Color had another good year in 2007.
“We experienced sales growth in each of our major product areas: oil-based, water-based, solvent-based and energy curable,” Mr. Collins reported. “Overall, our sales growth was in the high single-digits.”
In important news, Geoff Peters was elected president and chief operating officer in August. Mr. Peters most recently served as Wikoff Color’s vice president – operations and technology. Prior to joining Wikoff, Mr. Peters spent most of his career in the global logistics and integrated supply industries.
John Copeland, the new president of Toyo Ink America, LLC, noted that many special events and celebrations were held to commemorate Toyo Ink Group’s centennial anniversary in 2007, and added that the Group had a strong presence at two major trade shows – the Graph Expo in Chicago and the International Graphic Arts Show in Japan.
“Both shows proved to be a success and a great way to build interest in our brand and demonstrate
“Toyo Ink America had another good year in 2007,” Mr. Copeland added. “We continued to make headway in developing inks with better performance press characteristics, proof matching ability and environmental benefits. Graph Expo also gave us an excellent venue in which to highlight our eco-friendly systems, as we see growing interest and efforts by our customers to reduce the environmental burden of the process and products.”
The commercial sheetfed printing market continues to be impacted by consolidation and digital technologies.
“The overall offset ink business is the same as it has been for the past few years,” said Jeff Koppelman, president of Gans Ink & Supply. “The commercial printing business is shrinking, while packaging and some specialty niches are strong. For our company, the consolidation of the commercial printing business has been a mixed bag. Sometimes we are unaffected, sometimes it hurts, and sometimes it benefits us.”
Ink manufacturers looked for innovative ways to help their customers.
Brad Schrader, chief marketing officer for Sun Chemical, noted that 2007 presented another challenging business year to the graphic arts and printing industry, but he added that in that kind of environment, Sun Chemical’s focus was on helping its customers grow their businesses and succeed.
“That means working for our customers every day to further improve our performance on the essentials of our business such as reliable, on-time delivery, consistent product quality and investment in research and development,” Mr. Schrader said. “In 2007, we launched innovative new products that can help customers find new revenue opportunities and address their environmental performance.”
The packaging market continues to offer excellent opportunities for growth. Mr. Collins said that flexible packaging and labels continue to be the best opportunities for growth for Wikoff Color.
“For the past several years, packaging has remained a strong growth opportunity,” Mr. Knott said. “It will be interesting to see how that evolves with the renewed emphasis on the environment and sustainability. Sophisticated packaging can be a very strong value-added marketing tool, yet the resulting waste has to be handled. One of the reasons flexible packaging has made strong inroads is that it is also compactable. How might that type of thinking drive other packaging decisions? What new types of materials will be developed? Answers to these questions will drive how we develop new products to meet changing customer needs.”
“For Toyo Ink, we continue to see strong growth in the sheetfed market, both commercial and specialty fields, as customers continue to seek out products with highly reliable performance,” Mr. Copeland said. “UV printing is also growing at a nice pace for Toyo Ink. We’ve also been making strides in markets for packaging inks, particularly offset and flexible packaging, as Toyo channels resources into production, development and marketing efforts into these future growth sectors. We’ve just broke ground on a new production facility in Texas, which is expected to provide specialty polymers and related products such as fluid inks, coatings and adhesives for the U.S. market. The plant is expected to come on line in fall of 2008.”
“Sun Chemical sees strong opportunities in newly emerging digital technologies and in the packaging segment,” Mr. Schrader said. “There are a variety of opportunities in the digital and printed electronics markets for UV ink technology.”
Raw Material Costs
In the past few years, raw material costs have skyrocketed, largely due to higher crude oil costs, which directly impacts feedstocks and many other key ingredients for inks. Last year’s average cost per barrel of approximately $60 looks like a bargain compared to recent costs, which are in the mid-$90s per barrel.
Add to that the rise in pigment prices brought on by the elimination of the value-added tax (VAT) by the Chinese government, which helped to subsidize the pigment and pigment intermediate industries to the tune of 8 to 13 percent, and ink manufacturers are facing even more pressures. As a result, ink companies were forced to announce price increases.
“Having absorbed raw material cost increases for a number of years, we implemented several price increases over the past 24 months,” Mr. Knott said. “While customers weren’t happy, there is an understanding that such cost increases need to be recovered to secure on-going quality and assurance of supply of important raw materials. In addition, we are all facing cost increases in other areas such as freight and utilities. Anything that involves petroleum or natural gas is going up, and it is a difficult situation for everyone.”
“Higher raw materials costs are affecting the entire industry,” Mr. Schrader said. “At Sun Chemical, we’re working to control our own costs closely with our supply chain partners, to improve our internal operations and to develop new value oriented products and that can help customers grow their business. That’s what customers told us they wanted as higher raw material costs resulted in higher prices at Sun Chemical and across the industry. We will continue to invest in those areas that provide our customers with innovative products and services allowing them to be more competitive and present the best value propositions in the market.”
There is not a lot of room to absorb these costs. Ink manufacturers have already been cutting costs
“The increase has indeed been grave, especially in the pigment sector, which is mainly due to the legislation and tax issues in China,” Mr. Forker noted. “The price increase has mostly been accepted, as our customers understand the context. But we understand, of course, their needs as well. For the customers, too, it has become very difficult. Margins have become significantly smaller. For ink producers, such a development is always problematic as we spend again more than half of the money we earn for raw materials.”
“We were able to successfully implement a price increase as our customer base fully recognizes the inflationary situation all of its chemical suppliers are faced with,” Mr. McDowell said.
“We are seeing price increases for most of our raw materials,” Mr. Collins said. “We have notified our customers of our increasing material costs, and we are attempting to recover these higher costs in the form of price increases to our customers.”
Mr. Koppelman said that the raw material situation is a real problem.
“The vast majority of our suppliers have raised their prices this year and many have announced increases more than once,” Mr. Koppelman said. “The larger ink companies have made it clear in the press recently that they are raising their prices across all product lines, so I can’t imagine that any other company interested in making a profit wouldn’t be raising theirs as well.”
Mr. Sickinger said that CRI analyzed its supplier base beginning in 2001, and narrowed it down to key suppliers whom the company felt were the most compatible with its technical and marketing goals.
“Since then, we have built a close partnership with these companies based on our strategic criteria,” Mr. Sickinger said. “These suppliers have kept us informed of the global material situation and have worked with us to manage these rising costs. We have been discussing the need for higher prices with our customers and it has generally gone well. However, we have declined to bid on some RFPs because of the volatility in the material market. I think we might see a different stance from many of the commodity buyers because of the situation.”
Meanwhile, printers are facing their own pricing pressures as well, which is making it difficult to pass along higher prices.
The State of
The Ink Industry
The financial state of the ink industry remains an obvious concern, especially as raw material prices dramatically increase.
“Of course, the industry will further struggle with price increases regarding raw materials,” Mr. Forker said. “This will remain a big challenge for the future.”
“Continued inflationary pressures on raw materials will drive consolidation and pressure smaller- and medium-sized companies to strategize about their own margin management,” Mr. McDowell said.
“Rising raw material costs are adversely affecting the ink industry,” Mr. Schrader said. “Price increases have not fully covered raw material increases, so margins continue to shrink. Despite price increases and internal cost reductions, margins for ink manufacturers continue to be depressed.” Mr. Schrader said that Sun Chemical is responding by using its R&D capability to capitalize on opportunities for new products and solutions in specialty printing, packaging and printed electronics.
However, there is also good news to report. Mr. Sickinger reports a turnaround in the industry, as there are indications that ink manufacturers are passing along higher prices rather than competing primarily on market share.
“I think the ink industry is getting healthier and more responsible in their business practices,” Mr. Sickinger said. “The industry needs to gain back some pricing power it surrendered to the RFP buyers.”
“The ink industry has been relatively healthy,” Mr. Copeland added. “The general outlook is optimistic as customers continue to seek products with highly reliable performance.”
Mr. Schrader and Mr. Sickinger both believe that consolidation within the ink industry is almost complete.
“Consolidation in the ink industry has largely run its course because there are only a select group of large suppliers in North America and Europe,” Mr. Schrader said.
“I believe most of the consolidation in the U.S. has already occurred,” Mr. Sickinger said. “I don’t
“The latest statistics we have seen continue to indicate that the return on investment for ink companies would not be attractive to outside investors,” Mr. Collins added.
Mr. Sickinger noted that independent, focused companies are faring well.
“The independent companies are doing well because they have learned how to survive and prosper competing against the ‘big guys,’” Mr. Sickinger noted. “All the successful companies that I see are sharply focused on one or two niches that they serve better than their competitors. The companies who are trying to be all things to all people are having trouble.”
Consolidation isn’t just an ink industry phenomenon. Printers continue to merge as well. Consolidation continues to be a critical force in the publication printing marketplace, as in 2007 alone, R.R. Donnelley and Sons spent nearly $1.9 billion for Banta Corporation, Von Hoffmann and Perry-Judd’s Holdings, Inc. Quebecor World Inc. divested all of its European printing operations in November to RSDB of the Netherlands in a joint venture in which Quebecor will have a 30 percent stake and the Dutch company the remainder in the new group, which will be the largest independent printing group in Europe with annual sales of €1.3 billion ($1.9 billion) (please see related article on page 16).
On the packaging side, Altivity was acquired by Graphic Packaging for $750 million, merging the two largest folding carton printers, who combined have one-third of the estimated $10 billion North American folding carton market. Rio Tinto’s acquisition of Alcan and the potential spin-off of Alcan’s packaging business will also be a significant move, and there have been many other acquisitions in the past year as well.
“The ink industry follows the printing industry, which has undergone significant consolidation due to evolving technology and globalization,” Mr. Knott noted. “Print is growing in some regions but is mature in others. Packaging is the major growth area while traditional print media is shifting toward electronics or shorter-run digital output. We expect to see continued consolidation and refocusing in the printing industry, and the consumables industry will follow accordingly.”
Ink manufacturers are, of course, impacted by these mergers.
“When a company buys out one of our customers and is in contract with another ink vendor, this obviously has a direct impact on our business,” Mr. Copeland said.
As companies consolidate, it provides opportunities for ink companies that specialize in certain markets.
Mr. McDowell said that larger companies will traditionally look to larger suppliers as partners going forward.
“Consolidation positions Siegwerk to benefit through its global capabilities and core infrastructure to supply these larger purchasers,” Mr. McDowell said
“With the top 20 international flexible packaging accounts in Europe, for example, Siegwerk is already more successful than our biggest competitor,” Mr. Forker said. “Among all of the significant international ink producers, Siegwerk is the only company which is completely integrated. This is a big plus for us. With our mindset as a traditional, mid-sized company, we are well able to serve our globally operating customers. We combine all the benefits of a partly centralized organization with the proximity of our global network of sites to guarantee timely on-site support. In addition, we are able to provide one face to global customers which is highly appreciated.”
Mr. Schrader noted that the sheetfed market has been ripe for consolidation, but added that he doesn’t expect sheetfed ink manufacturers to merge.
“The decline in the commercial sheetfed market is leading to some consolidation, which is reducing capacity,” Mr. Schrader said. “Small printers are merging, or being bought out. Long term, we don’t see a strong incentive for sheetfed ink companies to merge. There is still a strong regional component in the market, driven by relationships with small and medium-sized printers, based on trust and service, as well as the higher costs of shipping and service.”
Ink industry executives believe that consolidation will continue among printers.
“Consolidation has produced more, larger customers who are raising their expectations of suppliers. It should be no surprise that Flint Group’s strategy has been to create a business which is well-positioned to meet the changing needs in the market place,” Mr. Knott said.
“The customers are under great pressure, which will lead to further consolidation,” Mr. Forker said. “This may result in ever bigger corporations to increase their profitability. For the ink market we foresee an adjustment of companies’ product portfolio with a focus on core competencies.”
The State of
The Printing Industry
The printing industry has shown some signs of improvement, which is good news for ink manufacturers.
“In the past one to two years, the printing industry has improved tremendously,” Mr. Copeland said. “Print output is back to 1999-2000 levels. The U.S. economy picked up pace since the spring, and we’ve seen a revival in advertising expenditures. The industry continues to undergo consolidation as commercial printers merge in order to stay in business. In short, the changing face of the ink manufacturing sector mirrors the changes in other sectors of the industry. As the numbers of printers diminish, so do the number of ink producers.”
“It is customary for the market to struggle financially through times of rapid cost increases as selling prices must catch up with a rapidly increasing cost structure,” Mr. McDowell said.
Mr. Schrader and Mr. Collins noted that digital technologies are making an impact.
“It is no secret that the rapid evolution of new digital communications technologies is changing the printing industry dramatically,” Mr. Schrader said. “Print overall, however, continues to modestly grow in most parts of the world. Some emerging markets are still experiencing healthy print growth.
“Of course, we see customers adding new digital printing capabilities that allow them to respond to the emerging demand for variable data print, the increased use of color and shorter runs,” Mr. Schrader added. “They are adding new digital presses that use inkjet and electrophotographic technologies. Sun Chemical is growing as a supplier of complete inkjet systems, and we expect that to continue.”
“In the past couple of years, we have seen our customers investing in more efficient printing presses and more energy curable technology,” Mr. Collins said. “Many of our customers are beginning to explore digital printing technology. Our customers are being challenged to deal with a growing emphasis on sustainable products and technologies.”
“More common among our customers are efforts to increase the competitiveness of their offset operations, which still have robust and healthy futures,” Mr. Schrader noted. “We’re working with our customers to create new solutions that reduce waste and energy usage to help them drive costs out of their businesses that don’t add significant value. We’re also helping customers shorten make ready times, so that they can take advantages of revenue opportunities for short run color and versioning. Success for print businesses in the graphic arts marketplace of tomorrow means embracing change and introducing new products and services that capitalize on digital technologies or support communications program that evolve in the online world.”
Outlook for 2008
Ink manufacturers say they are working diligently to develop the products and services their customers need to succeed.
“Sun Chemical wants to be the long-term trusted supplier – the company that truly works for its customers,” Mr. Schrader said. “To be able to achieve this, our customers have to know that we are here to help them with their problems. We are continuing our investment in digital, as we develop new platforms in narrow web, corrugated and new technology for CD and DVD printing. We want to sell more than just ink; we want to offer our customers the full package of hardware, software, consumables and service.
“We’re optimistic that Sun Chemical’s investments in innovation and commitment to sustainability will help our customers succeed,” Mr. Schrader added. “In the current challenging market conditions, our solutions are designed to help customers operate more efficiently without sacrificing quality or service to their customers. We’re also making it easier for customers to improve environmental performance. That positions the industry—and Sun Chemical—well for 2008.”
“We are excited about the future of Flint Group; however, we do think market conditions will remain challenging due to continued petrochemical-related cost pressures,” Mr. Knott said. “We are beginning to realize the full benefit of the consolidation of XSYS Print Solutions and Flint Ink that took place in 2005. The shared knowledge and experience has been invaluable, and the addition of Day International brings not only complementary products but a broader perspective on our customers’ challenges. That gives us better insight into how we can help them get the results they need. Beyond that we are continuing to look for ways to control costs through alternative materials and material sources. We are also taking a hard look at our internal processes to see how we can best leverage our global capabilities to provide more value to our customers at a local level.”
“Finishing strong in a landmark year in 2007 in which the Toyo Ink Group commemorated its centennial, we’re looking to maintain this momentum as we head into 2008,” Mr. Copeland said. “The market for printed goods is expected to stay fairly level. We’re working hard to win customers over with our strong reputation for quality products and technical service. In addition, with Toyo Ink’s new production site coming on stream toward the end of 2008 in Bryan, TX, we will be strengthening our specialty polymers R&D and manufacturing operations for packaging ink and adhesive applications, expanding our business in ways that complement our traditional commercial printing operations.”
Raw material costs remain the major concern.
“2008 will be a difficult year to push through the massive cost increases we are seeing today and on the near horizon,” Mr. McDowell said. “If we are unable to adjust our pricing to effectively offset these inflationary costs, it will be difficult to adequately meet the profit and cash flow requirements necessary to be a value driven supplier.”
“While Wikoff is well positioned for a good growth year, there is a lot of uncertainty about continued escalation of raw material pricing, the strength of the U.S. economy, consumer spending and exchange rates,” Mr. Collins said.
Overall, ink manufacturers are optimistic as they head into 2008.
“We are very much looking forward to 2008,” said Mr. Forker. “The world will experience Siegwerk as a global player in the ink market with a consistent new presence. One highlight will be Drupa, of course, with a strong focus on the emerging markets.”
“We are projecting significant growth in sales and margins for 2008 largely due to the investment we have made in developing new markets over the last two years,” Mr. Sickinger said. “We spend considerable time carefully choosing our markets and our customers.”