However, it will also be an opportunity for ink companies to build closer ties with their customers by helping them deal with the difficulties of an economic downturn.
In addition, it will also be a period in which ink makers will try to prepare themselves for the emergence of a leaner and more efficient printing industry in the region after the recession. Once Europe’s economies recover, printers will be far more aware about ways of cutting costs and will know more about technologies which raise productivity.
The State of the European
Europe’s printing industry seems currently to be suffering from declines in output higher than the average declines in gross domestic product (GDP).
In the UK, which has the second largest printing sector in Europe after Germany’s, printers are already reporting falls in demand of more than 10 percent while the country’s GDP is predicted to fall by 2 to 4 percent during this year.
Restructuring throughout the printing supply chain seems inevitable. Yet mergers and acquisitions are being hampered by the shortage of finances because of the credit crunch.
The effects of the financial crisis on the reorganization of the European printing sector, which has for years been dogged by overcapacity, became evident in the summer when plans by the Dutch private equity company Hombergh/De Pundert Group (HHBV) to merge the European operations of Quebecor World of Canada with the Dutch printing RSDB ran into trouble.
HHBV was able to buy Quebecor’s European business for €135 million ($170 million) in June.
But the second part of the plan had to be abandoned in September after HHBV failed to raise funds on the financial markets for the acquisition of RSDB, which, after being combined with the Quebecor operation, would have formed a pan-European printing giant.
The impact of the global financial turmoil began to bite into the European printing sector in the fourth quarter of last year. Printers reported that they were having to slash their prices in order to compete for sales.
Forced to Raise Prices
In countries outside the 16-country euro zone, suppliers of inks and other consumables have had to raise their prices to make up for the depreciation of their national currencies against the European Union currency, the Swiss franc, U.S. dollar and Japanese yen.
In the UK, whose pound has dived by around 30 percent against the euro and dollar and by almost 40 percent against the Swiss franc over the last few months, ink companies have been putting up their prices by 5 to 15 percent.
“We’ve had to raise our prices, otherwise we would have been making negative returns on our sales,” said Paul English, sales director at Stehlin Hostag Ink, the UK arm of Huber Group of Germany. “Producers of other consumables are having to do the same because so much of the manufacturing of inks and other products is done in large plants in mainland Europe.”
Ink companies have also had to raise their prices in response to higher raw material costs, triggered in some cases by shortages in intermediates and some types of pigments.
“The cost pressures of the raw materials are still present,” said Felipe Mellado, Sun Chemical’s chief marketing officer. “Even with a slow-down in demand, raw material suppliers are still reluctant to reduce their prices. We are working hard to ensure that any savings from a reduction in raw material costs are transferred to our customers as soon as possible.”
Ink makers – like other suppliers in the printing industry across Europe – have been hoping for a relatively short-lived economic downturn.
“Hopefully in the summer of this year, the economy will begin to rebound and investing and consuming will begin to occur again,” said Enno Urbeinz, manager external communications, Siegwerk, Germany.
But some sections of the European print industry are warning that a revival in demand may not come until later in the year.
“Print is unlikely to experience any meaningful improvement in its fortunes until well into the second half of this year at the earliest,” said Andrew Brown, corporate affairs director of the British Printing Industries Federation (BPIF), London.
For ink producers, a major worry is that the longer the length of the recession, the more likely they will have to deal with bad debts. Already insurance companies have been withdrawing cover against defaults on credit because of concerns about the numbers of printers going out of business. Some insurers have withdrawn from the trade credit insurance business altogether on the grounds it is no longer profitable.
“The loss of credit insurance facilities has put us in a big dilemma with some customers,” said a senior executive at one international distributor, serving the graphics and related industries. “We’ve had to demand cash up front from customers, even in some cases from long standing ones.”
Declining Capital Investment and Press Manufacturers
In an effort to save money at a time of poor demand, some printers have been reducing their capital investment, particularly expenditures on new presses.
The first printing sector to be hit by the financial turmoil in the second half of last year were the press manufacturers, who had hopes to benefit substantially from drupa, the world’s largest printing exhibition, held at Dusseldorf, Germany, in late May and early June, 2008. Their hopes of a boost in sales were soon dashed as the world economy started to go into a steep decline.
“(There was a) surprisingly upbeat mood at drupa, where the response to our product launches was good and a large volume of contracts was signed,” said Albrecht Bolza-Schuenemann, president and chief executive of Koenig & Bauer AG (KBA), the German-based manufacturer of web and sheetfed offset presses.
“New business subsequently generated by this definitive print media event was weaker than at any time before,” he continued. “In my 30 years in the press engineering industry, I have never experienced such an abrupt and comprehensive collapse in our markets as in the summer.”
Printers, who are worried about their cash flows and the dangers of increasing their debts at a time of a credit squeeze, delayed buying new equipment.
Also, the prospect of a big rise in bankruptcies in the printing market is raising the possibility of a sharp reduction in prices for second-hand equipment in the wake of large quantities of used machines being put up for sale.
However, printing equipment manufacturers claimed that cuts in lending by banks was a major factor behind the drop in purchases of presses in Europe.
The sudden fall in orders was a major blow to the big three German printing equipment manufacturers – KBA, Heidelberg and manroland AG.
Figures on engineering orders in 29 sectors issued by the German Machinery and Plant Manufacturers’ Association (VDMA) showed that in the third quarter of last year, only the construction and textile segments did worse than printing and paper manufacturing.
The €9 billion ($11 billion) global market for new printing presses, excluding digital machines and spare parts and installation costs, was expected to have shrunk to €5.2 billion last year, according to KBA estimates. This was equivalent to a 42 percent decline in value and approximately 30 percent in volume terms.
“The cancellation of orders due to failed funding is a perennial issue in a global market for capital goods such as ours but never on such a massive scale,” said Mr. Bolza-Schuenemann. “And being unprecedented, it was unforeseeable.”
After suffering a €100 million shortfall in sheetfed press sales compared to its targets, KBA is making redundant 17 percent of its 3,600 staff at its three European manufacturing plants.
“After many years of rapid growth in our sheetfed division, we believe that our only chance of safeguarding this core business lies in adapting to smaller market and sales volumes in the medium term,” said Mr. Bolza-Schuenemann.
KBA predicted that it would make a big pre-tax loss in 2008 after its operating profit plummeted by 81 percent in the first nine months of the year to €7.9 million.
Manroland announced in January that as a result of being “seriously affected by the reluctance of customers to invest due to the financial crisis and recession,” it was closing its Mainhausen plant in Germany and cutting its 8,656 person workforce by 7 percent, or 625 jobs. However, despite experiencing a 20 percent reduction in orders during the year, manroland was still able to make an operating profit in 2008.
In the first nine months of its financial year from April to the end of December 2008, Heidelberg recorded an operating loss before special items of €45 million against an operating profit of €177 million in the same period in the previous year. Sales dropped by 14 percent to €2.2 billion, while in the third quarter they fell by 19 percent.
However, the global market leader in printing press manufacturing claimed that its losses would have been bigger had it not taken early action after spotting the imminent dive in the market in the mid-2008.
“We were quick to introduce stringent cost management measures,” said Bernard Schreier, Heidelberg’s chief executive. “We have trimmed personnel costs with measures that include short-time working in all areas, scaled-down production, streamlined administrative structures and reduced our investments and the amount spent on research and development.”
Those printing companies which are maintaining or even increasing their capital investment in Europe are concentrating on buying equipment which helps reduce costs through automation. Raising productivity is one means of cushioning the impact of a drop in sales.
“Printers are wanting automation systems which enable them to avoid loss of time from the start-up of the printing process through to the completion of the job,” explained Russell Hicks, managing director of Genesis Marketing, Deanshanger, England, a distributor of manroland and Ryobi presses.
“One element of the reduction in overall printing time is the ability to send information on ink from the front-end of the machine to tell the press the exact ink requirements during the printing,” he added. “Overall it does mean that less ink will be used per printing job.”
Manroland has been expanding the application of its autoprint technologies while Ryobi, the Japanese press manufacturer, has been introducing a range of highly automated presses into Europe.
“Unfortunately the recession is going to be hard on those printers who have not invested in hardware and software to help them bring down their costs,” said Mr. Hicks. “By the end of this year, there will be fewer printers in business, and the ones that have gone will be those which have not made themselves productive. The higher cost printers will disappear.”
A priority area for printers in the automation of printing has been color management to ensure consistency between the graphic design and the final printed production. This has involved the introduction of on-line monitoring equipment such as densitometers and spectrophotometers for the measuring of light and color during the printing process.
Color management has become particularly important in the packaging sector, which could be one of the large sectors in the printing industry in Europe to show some growth this year. Multinational brand owners and retailers increasingly want uniformity in the quality of the inks and of the printing of the packaging, not only throughout Europe but also around the globe.
Growth in the main recession-proof areas of food, beverages, cosmetics and toiletries and healthcare should offset a decline in packaging in other areas.
Rexam, the UK-based company which is one of the largest of Europe’s packaging producers, reported in February a 28 percent increase in sales in 2008 to £4.6 billion ($6.5 billion), although its operating profit rose by only 2 percent to £380 million. The company attributed its strong revenue performance to the large proportion of its business in food, drink and healthcare.
Sheetfed vs. Digital
In the sheetfed market, printers are coming under intense pressure to diversify into digital printing, or, if they already have digital printing equipment, to invest even more heavily in it. Digital printing technologies are becoming even more efficient, and as a result, more cost competitive with offset machines.
Digital printing’s share of the total printing market in volume terms is still only around 10 percent. But in some segments of commercial printing in Europe, it is level pegging with sheetfed.
Among the two main digital processes of inkjet and electrophotography or laser printing, the biggest inroads into the sheetfed market are being made by inkjet, where recent technological advances have raised its printing speeds and color quality.
Inkjet color printing, especially that which includes the application of UV curing, is currently one of the fastest growing niches in the European printing market with growth rates well into double figures.
In both inkjet and laser processes, the expansion of digital color printing has been boosted by the introduction of continuous feed systems which enable digital presses to provide full-process color at speeds as high as 150 meters (500 feet) per minute.
The confidence of the OEM manufacturers of digital presses in achieving continued growth in sales has been demonstrated by big hikes in the prices of the ink and toner cartridges of their machines in Europe.
In mainland Europe, U.S.- and Japanese-based OEMs have recently been raising their ink and toner cartridge prices by approximately 10 to 20 percent mainly because of currency fluctuations. In the UK, the increases have been as high as 20 to 30 percent.
The steep rises in OEM prices should help ink and toner producers in the aftermarket for non-OEM cartridges to increase their share of sales in Europe.
“We can expect an increased penetration in Europe of non-OEM ink and toner suppliers,” said Zec Butcher, a director in Europe of the market research organization Infotrends. “In the present economic conditions, users of digital printers will be looking even more intently for ways of making cost savings.”
The Internet and the Battle
For Advertising Share
The fierce competition between equipment manufacturer and specialist suppliers for lucrative ink and toner sales underlines the robustness of the digital printing sector even in a recession.
However, it is also diverting attention from the major challenge facing operators of both digital and conventional printing processes.
This is the relentless rise of the internet as a means of communication, which is rapidly eroding the long-established domination of the print media.
Even without a recession, the internet would be continuing to take away advertising from newspapers and magazines as well as promotional expenditure from direct mail.
In Western Europe, this year’s total advertising expenditure is expected to go down by 1 percent, according to forecasts by the London-based media agency ZenithOptimedia. Spending on newspaper and magazine advertising, which between them account for 45 percent of the total, will each shrink by 4 percent.
Expenditure on internet advertising will, on the other hand, rise by 12 percent in 2009. In the following two years, it will increase by an annual average of approximately 17 percent, according to ZenithOptimedia. In 2011, the internet’s share of advertising in the region will have risen to 18 percent against 11 percent in 2007, while those of newspapers will have slipped from 30 percent to 27 percent and magazines from 15 percent to 13 percent in the same period.
Even the advertising industry, whose financial support is crucial to the future of the print media, is becoming concerned that its own sector may be damaged by the internet. Its prospects of long-term growth could be undermined by the transfer of marketing expenditure into new communications channels created by the internet, such as social networking through messaging, blogging, twittering and video sharing.
The ad industry must get to grips with this changing marketplace over the next decade or it could face growth of only 1.2 percent per year by 2016,” concluded a report in January on the future of advertising by the Institute of Practitioners in Advertising (IPA),located in London.
One result of the rapid expansion of the internet has been a merging of the print and online media in some areas of the printing process. Web-to-print is likely to become more widespread across Europe.
In a recent survey of European print service providers, Infotrends found that 14 percent of their work by volume was being done over the internet, such as the taking of the orders for print jobs, management of workflow data and administrative functions such as the handling of invoices. By 2010, the proportion of the work done online was expected to have risen to 37 percent.
“In order to make themselves more cost competitive and efficient, particularly during the recession, print providers are realizing they need to automate their workflows as much as possible,” explained Kaspar Roos, a senior consultant at Infotrends. “It only seems logical that the whole printing process will become more digitalized.
“The next step, which is already becoming evident, is for print providers to turn themselves into marketing services providers,” he continued. “In this way they provide both print media services and online communications services, supported by know-how about marketing and communications strategies. There is already evidence that marketing campaigns which combine print media with email communications get a much higher response level. Printers have to change their competences so that their expertise is more than knowing about how to put ink on paper.”
The recession could not only accelerate radical changes in the printing industry in Europe, but also in the whole communications sector.