"Consolidation's Effects and Tomorrow's Roadmap," the theme of NAPIM's Annual Convention, offered attendees an effective look at where the industry may be heading in the coming years.
As is the case in so many industries, the ink industry is in a state of flux. The prolonged economic slump has impacted sales and margins throughout the supply chain, from printers through suppliers.
As a result, this year’s National Association of Printing Ink Manufacturers (NAPIM) Convention, titled “Consolidation’s Effects and Tomorrow’s Roadmap,” was particularly appropriate. The convention, which was held March 28-April 1 at La Quinta Resort & Club in Palm Springs, CA, and drew 285 attendees, featured talks centering on the globalization of the business world and the impact of consolidation.
Among the highlights was a presentation by Graeme Deans, author of “Winning the Merger Endgame - A Playbook for Profiting from Industry Consolidation,” who discussed the state of the ink industry in terms of consolidations, and a panel of industry leaders from Europe and North America who offered their thoughts on the ink industry. A panel of press manufacturers also offered their views on where the printing industry is heading.
Throughout the convention, attendees received plenty of insight into the future of the industry.
State of the Industry
One of the key highlights of NAPIM’s Annual Convention is the association’s State of the Industry Report, and as one might have expected, the results of 2003 were not particularly positive.
The 2003 State of the Industry Report was delivered by Management Information Committee members Jim Leitch, CEO of Braden Sutphin Ink, and Rick Tolin, vice president of sales and marketing for Carroll Scientific, and they detailed the challenges the industry faces.
Among the findings, overall volume declined 3.3 percent in 2003 compared to 2002, with sales down 4.5 percent. Of the three major processes, litho was least affected, with volume only down by 0.1 percent and sales off 2.8 percent. In the fourth quarter, litho’s volume increased 0.5 percent, although sales dropped 3.1 percent. Flexo was down 4.8 percent by dollars and 3.8 percent by pounds, while gravure was hardest hit, with a decline of 8.7 percent by volume and 9.3 percent by dollars. The numbers were also reflective of the fourth quarter, which showed a 5.1 drop in value and 3.0 decline in volume compared to 2002.
Overall, the numbers illustrate the further erosion in pricing. “Across all product lines, we see lower volumes and even lower pricing,” Mr. Tolin said.
“The dollars continue to decline at a faster rate than volume,” Mr. Leitch said.
During the past three years, the ink industry has seen a 14 percent decline in volume in litho, gravure and sheetfed inks, with gravure averaging at least a 7 percent decline in volume during each of the past three years. Dollar value dropped 15 percent during the past three years.
In terms of publication and commercial printing compared to packaging, packaging fared the best, with a decline of 2.8 percent in volume and 2.0 percent by dollar value, meaning that prices held steady. In terms of volume, bright spots were sheetfed, solvent-based flexo and water-based gravure, while solvent-based gravure and water-based flexo, a staple of the slumping corrugated industry, declined substantially.
On the publication side, sales declined 6.3 percent while pounds declined 3.3 percent.
Earnings before interest and taxes (EBIT) slumped to 4.8 percent in 2003, down from 5.1 percent in 2002, while return on net assets (RONA) was 9.9 percent, a major decline from last year’s 15.0 percent.
Mr. Leitch and Mr. Tolin are both hopeful that the ink industry will soon see better days.
“The report confirmed what we have all been seeing, that it has been a very difficult three-year period,” said Mr. Leitch. “In 2004, we’re not off and running yet, but hopefully we have hit the bottom.”
“Hopefully the trends will start to move upward,” Mr. Tolin added. “Packaging is still holding a little stronger, while the publication/commercial market has felt the brunt of the economy’s downturn.”
One of the highlights of the convention was “Winning the Merger Endgame in the Printing Ink Industry” by Mr. Deans of ATKearney. Mr. Deans discussed his book, and related where the ink industry is and what companies need to do.
First, he noted that companies can be segmented by revenue, whether they are simple growers increasing organically or underperformers; and by value, either as value growers or profit seekers. Underperformers are most likely to be consolidated.
Mr. Deans breaks the stages of industry consolidation down to four. The first is opening, where new industries such as telecommunications and dot coms are in. The second, scale, includes pharma and banking, where rapid acquisitions are occurring. The third is focus, where three top few companies control more than 50 percent of the sales and most mergers have already occurred; and the fourth is balance/alliance, such as tobacco, defense and soft drinks, where only a few major companies remain. He places the ink industry as well as printing in the third stage.
“The ink industry is on the third stage, where consolidations between larger and smaller companies have occurred, and now there will likely be mergers between equals among larger companies,” he said. “It is likely that competition will be fierce and foreign entrants will come into the market.”
Mr. Dean said that other third-stage industries such as steel and auto might provide examples. “In the third stage, players often exit the industry,” Mr. Deans said. “In order to be successful, your business strategy doesn’t have to be fancy. Toyota has had sustained performance with 5 percent increases every year and no acquisitions.”
The key to success in this environment is to assess your position in the market and adapt to the changes.
“You have to adapt your business strategy to your competitive starting point, put a growth strategy in place and to the extent that acquisitions form part of your strategy, ensure strong planning and execution throughout the M&A process,” Mr. Deans said.
“In the next three to five years, I don’t think anybody’s predicting a return to the heady days of the 1990s,” Mr. Deans concluded. “On the positive side, there are opportunities to supplement growth of product sales by providing value-added services. On the downside, low cost product competition may enter the market. Private equity firms may begin to roll up small ink companies to become a player. Overall, there will probably be modest growth that will result from the intensely competitive landscape. It will be a tough environment. Your customers will go there, and the question is whether you will follow. Regardless of size, the most important thing you can do is assess where you are and adapt.”
Ink Industry Panel
Another highlight of the convention was the panel of U.S. and European ink industry leaders, who discussed some of the issues of today. On hand for the session were Mitch Baker, president of American Inks and Coatings; Herbert Forker, CEO of Siegwerk Group; Dave Frescoln, president of Flint Ink; Winfried Gleue, president of Hostmann Steinberg; Peter Koivula, chairman, president and CEO of Akzo Nobel Inks; and Ernesto Sanchez, director general of Sanchez Ink.
The Asian market was one issue the panel discussed.
“My view is that the ability of China and India market to produce a lower cost product with the increased cost of transportation and tariffs is not that significant as long as they are not subsidized or are operating without a profit,” Mr. Frescoln said. “How you are organized and disciplined is a bigger determinant.”
“We’ve become more competitive because we have been importing raw materials,” Mr. Baker said.
“We see China and India as more of an opportunity, in areas such as changing from toluene-based to toluene-free,” Mr. Forker said.
Being paid for the value ink manufacturers provide was clearly an important topic.
“The fact of life is that we sell ink and don’t get paid for service,” Mr. Baker said. “The level of service today is greater, and yet we sell ink cheaper than we did 15 years ago.”
“Is ink a commodity, or is the service component important?,” Mr. Frescoln said. “I say we are a service industry although we don’t act like it. We service a variety of markets, and you can’t compare a high volume market like web offset to packaging, commercial sheetfed or digital. They are all service oriented, and local companies with really good service don’t have to worry.”
The state of the global ink industry was also a topic.
“The European ink industry is customer-driven and there has been much consolidation,” Mr. Forker said. “There are global companies, but there are also family-owned companies not driven by financial ratios but rather by entrepreneurship. In packaging, we see globalization happening and companies are specializing, and I think we’ll see large deals.”
“In Europe, the top seven ink companies have 85 percent of the business, yet there are 120 ink companies,” Mr. Koivula said. “It is very globalized yet fragmented. There is huge potential for growth but it is in other places. For example, you have to look at the ink industry segment by segment when it comes to the impact of digital. Screen has been quick, but box printing would be too expensive and too slow for ink jet right now. ”
In addition to serving on the panel, Mr. Koivula also gave a talk on the new European Printing Ink Association (EuPIA), which recently held its first conference.
“The whole European ink industry is behind us,” Mr. Koivula said. “Our first conference was attended by 55 people from 13 companies and 11 countries, and all told, 90 percent of the European ink industry was represented. We will make EuPIA into a successful association, and we are already changing our industry.”
One of the annual highlights of the NAPIM Convention is the Ault Award banquet, and this year’s ceremony was no exception. Michael Murphy, senior vice president of Sun Chemical and president of its North American Inks, as well as a former NAPIM president, received the Ault Award, the industry’s highest honor.
“I am kind of overwhelmed,” Mr. Murphy said. “I would like to thank the people I have worked with at Sun Chemical, and the new leadership at Sun Chemical who are not accepting the status quo.”
In addition, six industry leaders were selected to receive the prestigious Printing Ink Pioneer Award for service to the industry. The honorees were Brad Bergey, corporate vice president of Sun Chemical and COO of Kohl & Madden; George Dunn, president of Kohl & Madden and corporate vice president of Sun Chemical; Norman Harbin, Flint Ink’s vice president of business and technical development; Ronald Miller, Flint Ink Corporation’s vice president news ink – central division; Steven Miller, Kohl and Madden’s manager of color systems technology; and Fred Wiencek, metal deco product manager for INX International.
Among the other events at the convention, Denny McGee of Mark Andy/Comco and Drew Immiti of Heidelberg Web Systems offered a press manufacturers’ perspective of where printers are heading. Tim Gard, a comedian, was the keynote speaker, and discussed “Developing a Comic Vision.”
Outside of the meeting, the annual golf and tennis tournaments were held, as were a historical tour of La Quinta, a Jeep Tour, a visit to Plaza Roberge Galleries and a trip to the Palm Springs Follies. The Suppliers’ Party, featuring Casino Night, closed the convention.
All in all, attendees came away impressed by the program, and NAPIM officials were delighted with the reaction to the convention.
“I was very pleased with the convention,” said Jim Coleman, NAPIM’s executive director. “We received very good feedback about the relevance of the program to our industry and for our customers. The consolidation talk was a particular highlight, and as for the press panel, the viewpoint on how other suppliers see our customers’ market is valuable. The turnout was 285, which was very good, and we had a large number of ink companies attending.”
“I thought the NAPIM Convention went very well,” said Jeff Koppelman, president of Gans Ink and Supply and NAPIM president. “The turnout was excellent and the content was varied and well received. The consolidation talk was particularly interesting to larger, acquisition-minded companies, as well as smaller ones who wanted to know where the industry might be heading.”
“Everybody who came up to me was very pleased that our program had a lot of content that was relevant,” said Mike Gettis, NAPIM treasurer and program chairman and Colorcon No/Tox Products’ general manager. “The speakers were very professional and the panels were animated.”
Next year’s convention will be held April 7-11 at Hyatt Coconut Point, Bonita Springs, FL. Coming off of this year’s success, NAPIM officials are already thinking of ways to bring even more value to attendees next year.