The current slowdown in the western European economy is delaying technological changes in the region’s printing industry as printers cut back their investment in new equipment and processes.
For ink makers, these reductions in capital expenditure by their customers could mean that the switch to technologies like digital printing could take longer than expected. As a result, market share of conventional inks may remain relatively intact longer than previously forecast.
Predictions that digital technologies will take over large parts of commercial printing or that gravure will continue to lose ground to web offset may turn out to be more difficult to achieve.
Now much of the printing industry is directing its efforts at keeping down overhead rather than taking on the burden of new processes.
Printing and supplier companies are effectively preparing themselves for a prolonged depression in key segments of the European printing sector, which could result in a lengthy period of low profitability and investment.
“The European industry is in limbo,” said John Birkenshaw, business manger for printing at the consultancy Pira International, Leatherhead, England. “Market conditions are similar to those in the late ’80s and early ’90s when sales were flat for around four years. There was not much forward movement then and we may find that the same is happening now.
“We may have to push back our targets for changes in market shares of technologies, like digital printing, by approximately four years,” he added.
The European Commission, the European Union executive, is forecasting that the economy of the 12-nation euro zone will grow by less than 1 percent this year. Growth will pick up next year but will still be a relatively sluggish 2 percent, and in countries like Germany may be lower.
Germany’s stagnant economy has depressed sales in the largest print sector in Europe. Hopes of a recovery in 2003 in the country have been shaken by plans by the German government to raise taxes and cut public spending in order to tackle a budget deficit caused by lower tax revenues.
The European printing industry has been banking on a revival in advertising, which has slumped since last year. But this may be delayed until 2004.
Even then, levels of advertising expenditure will still be lower than they were in 2000, according to a recent survey by Zenith Optimedia, the London-based media agency.
It is likely that a rise in advertising spending will initially favor broadcast rather than press media. While TV advertising has started to rally in the U.K., sales of press advertising will fall by 3.5 percent this year, said Zenith. In Germany, total advertising will decline by more than 5 percent.
Recent reductions in promotional expenditure by companies in areas outside advertising, such as certain types of direct mail, have also begun to hit commercial printing. Cost-saving measures by financial companies in the wake of a slump in share prices and mergers and acquisitions have also diminished print sales.
“The effects of sharp reduction in advertising expenditure have been exacerbated by persistently low levels of activity in corporate finance markets,” said Miles Emley, chairman, St. Ives plc, one of the U.K.’s leading printing companies.
As a result, many printers are rethinking their business plans on the assumption that they may have to wait for more than two years for a rejuvenation of the printing market.
“Our commercial printing businesses are operating in the worst market conditions we have known for decades,” said Mike Taylor, chief executive of the U.K. printing company Fulmar. “We cannot anticipate that life will get better next year. That’s an over-optimistic view.”
Approximately three quarters of U.K. printers are working below capacity, according to the latest survey of its members by the British Printing Industries Federation (BPIF).
The majority of commercial printers in the survey reported a further deterioration in third quarter with worsening order books. Nonetheless, some commercial printers and companies printing labels, stationery, business forms and books reported a good summer quarter with their presses running at above-average.
Packaging printers also had a higher level of orders and output than most other sectors of the printing sector. Still, approximately 90 percent of them had spare capacity.
However, throughout the U.K. printing industry, as in much of the rest of Europe, most companies are having to reduce their selling prices and accept a continued squeeze on their margins.
“Inevitably, with lower levels of profitability, investment is being cut,” said Kyle Jardine, a BPIF researcher. “Capital expenditure on equipment and machinery has now gone down for two quarters in succession and has decreased in eight out of the last 11 quarters.”
Press Purchasing Declines
Manufacturers of printing equipment have been suffering from the steep investment drop by European printers.
Heidelberg has announced job losses of more than 2,000, 80 percent of them in Germany, as part of an extensive cost-cutting program in the wake of falling orders. “Our objective is to ensure a sustained increase in the company’s earning power, even when times are difficult,” said Bernhard Schreier, Heidelberg’s chairman.
MAN Group is predicting that the earnings of its MAN Roland printing machines operation this year will plummet to half its E89 ($89 million) profit of 2001. In the first half of 2002, orders were down by one-third, mainly for sheetfed and webfed machines.
Koenig & Bauer (KBA) reported that its orders at the end of June were 25 percent lower than a year ago. But there has been evidence of an improvement with orders in the second quarter dropping by nearly 17 percent against 36 percent in the first.
Some of the biggest declines in orders have been those for sheetfed machinery, reflecting the hard times being experienced by commercial printers throughout most of Western Europe. But there have also been dramatic declines in orders of digital equipment as well.
After experiencing a 29 percent drop in orders for its digital products in the second quarter of this year, Heidelberg re-evaluated the short-term future of the digital printing market.
“We still believe in the longer-term potential of the sector but we estimate that it could be two years before the digital printing market starts to pick up again,” said a Heidelberg official. “Because economic conditions have affected the willingness of printers to invest in this new technology, it will develop at a slower rate than expected.”
Xaar, a U.K.-based developer and manufacturer of ink jet print heads, has just decided to put on hold a project to license to makers of commercial printing equipment a technology for page-wide ink jet heads.
“Digital printing is not a core business for a lot of these manufacturers so understandably in these difficult times they want to concentrate on their main businesses of making offset or flexo machines,” said Ian Macgregor, Xaar’s marketing director. “A technology like digital printing requires a long-term commitment, while people are now thinking much more in the short term.”
New technologies are falling victim to a trend among a large number of printers to avoid big changes in their current practices by focusing on making the best out of their existing equipment.
“If printers are faced with the quandary of whether to move ahead with litho or digital, they will tend to decide not make a decision yet and to hang on to what they’ve got,” said Mr. Birkenshaw of Pira.
Printers are hesitating to make purchases which could push up their costs. Hence sales of processes such as direct imaging equipment are not doing well at the moment.
“Direct imaging is not currently popular with printers because it is seen as raising the cost of plate exposure,” said Barry Happe, a director of Vantage Strategic Marketing (VSM) Shepton Mallet, England.
“It is ahead of its time,” he explained. “You need better market conditions for the introduction of higher-cost equipment. Direct imaging will eventually become a workhorse process when the printing industry is less reliant on manual skills and everything is more automated.”
Meanwhile printers are likely to restrict themselves to relatively small investment outlays for which they can see themselves gaining quick returns. Thus VSM is standing by its prediction that computer-to-press (CTP) technologies will double their market share from nearly 18 percent to 40 percent in 2001-06.
“Printers can benefit immediately from CTP because it no longer takes six months to get set up and running and the software programs are much easier to implement,” said Mr. Happe.
“Suppliers are helping to increase sales by offering generous credit terms and discounts,” he added. “Average CTP prices have gone down by around 40 percent recently. There is a lot of overcapacity among suppliers.”
VSM believes that the widespread application of CTP among litho printers will enable them to fend off competition from digital presses for several more years.
The availability of comparatively inexpensive laser engravers may also help to persuade printers to stick with gravure presses rather than transfer to web offset processes for publishing work.
“Laser engraving is a good example of a piece of equipment which in the current climate gives a good return on an investment,” said Mr. Birkenshaw. “Rather than switch to a completely different process, the printer can reduce cylinder-making costs and turnaround times to deal with shorter runs.”
The present economic climate in Europe is holding up expansion of big technological innovations. But once market conditions improve, the best performers among printers and their suppliers could be those who have continued to invest in new equipment so that they are well placed to take advantage of accelerated growth rates.