Out of print: Operators struggle as paper publications fold in favour of digital media

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1 Out of print: Operators struggle as paper publications fold in favour of digital media IBISWorld Industry Report C Printing in the UK October 2013 Lewis Sutton 2 About this Industry 2 Industry Definition 2 Main Activities 2 Similar Industries 2 Additional Resources 3 Industry at a Glance 4 Industry Performance 4 Executive Summary 4 Key External Drivers 5 Current Performance 7 Industry Outlook 9 Industry Life Cycle 11 Products & Markets 11 Supply Chain 11 Products & Services 12 Major Markets 13 Globalisation & Trade 14 Business Locations 16 Competitive Landscape 16 Market Share Concentration 16 Key Success Factors 16 Cost Structure Benchmarks 18 Barriers to Entry 19 Major Companies 19 De La Rue plc 20 St Ives plc 23 Operating Conditions 23 Capital Intensity 24 Key Statistics 24 Industry Data 24 Annual Change 24 Key Ratios 25 Jargon & Glossary info@ibisworld.co.uk

2 Printing in the UK October About this Industry Industry Definition Companies in this industry print books, magazines, brochures, labels and tags, posters, diaries, calendars, maps, stamps, security papers, cheques, banknotes and other products. This industry excludes the printing of newspapers and periodicals appearing at least four times a week. Main Activities The primary activities of this industry are Commercial printing General printing Job printing Screen printing The major products and services in this industry are Books, brochures and leaflets Newspapers, magazines, journals and periodicals Printing onto non-paper materials Security printing Trade advertising material and catalogues Similar Industries C Paper & Paperboard Manufacturing in the UK Firms in this industry manufacture paper and paperboard products from pulp and recycled materials. C Paper Stationery Manufacturing in the UK Companies in this industry are principally involved in the manufacture of paper stationery products used in commercial, educational and household applications. C Newspaper Printing in the UK Businesses in this industry print newspapers. IBISWorld writes hundreds of UK industry reports, which are updated up to four times a year. To see all reports, go to Additional Resources For additional information on this industry British Association for Print and Communication British Printing Industries Federation Office for National Statistics

3 Printing in the UK October Industry at a Glance Printing in Key Statistics Snapshot Revenue 8.9bn Annual Growth % Annual Growth % Profit 471.9m Exports 533.5m Businesses 10,115 Market Share De La Rue plc 3.4% St Ives plc 2.7% % change Revenue vs. employment growth % change Retail sales index Year Year Revenue Employment p. 19 Products and services segmentation ( ) SOURCE: Key External Drivers Retail sales index Percentage of households with internet access Producer price index for paper and paperboard Demand from book publishing 13.3% Printing onto non-paper materials 14.3% Newspapers, magazines, journals and periodicals 7.5% Security printing 24.4% Other p % Books, brochures and leaflets 23.4% Trade advertising material and catalogues SOURCE: SOURCE: Industry Structure Life Cycle Stage Decline Revenue Volatility Medium Capital Intensity Medium Industry Assistance None Concentration Level Low Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level Light Medium Low Low High FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 24

4 Printing in the UK October Industry Performance Executive Summary Key External Drivers Current Performance Industry Outlook Life Cycle Stage Executive Summary Printed materials are increasingly being replaced by alternatives, such as online media, as the printed word is proving slow to produce and costly to distribute. Furthermore, consumers and businesses are gradually moving to trading and conducting business online. This is having a negative effect on demand for printed materials from retailers, financiers and service providers. In , the Printing industry is expected to generate revenue of 8.9 billion, down 4.9% on The industry employs over 77,000 people, making it one of the larger industries in the United Kingdom, but it is suffering from overcapacity and is in decline. This is resulting in a reduction in the number of businesses and the number of people employed in the industry. Employment numbers have dropped at a compound annual rate of 8.9% over the five-year period. Revenue is expected to decrease at a compound annual rate of 6.9% over the five years through A weak UK economy and a shrinking advertising market are adversely affecting the industry, as is the substitution of printed media for online or digital media. Declining sales volumes are being accompanied by downward pressure on unit selling prices. Capacity has been rationalised and firms have consolidated. Printing companies are now diversifying into complementary services that offer higher margins. Industry revenue is forecast to fall at a compound annual rate of 3.2% over the next five years, to an estimated 7.6 billion in A pickup in economic activity and a stronger advertising market over the next five years will promote industry activity. However, the industry will continue to be hurt by competition from substitutes for commercially printed material, such as online information and advertising. Furthermore, retailers, financiers and service providers are shifting their services online, reducing demand for printed materials. The ability to offer convenient and targeted products at an economic price will be important in many markets. There will be growth in shorter, digitally printed runs, which will make conditions difficult for long run offset printers. Online printing operators will emerge as significant players in the short print run market. Key External Drivers Retail sales index Retailers are major users of printed products (e.g. labels, bags, direct mail and catalogues) and retail trade levels affect demand for other products with printed inputs, such as packaging. From onwards, the retail sales index is expected to grow, providing a potential opportunity for industry operators. Retail sales index 4 3 Percentage of households with internet access % change 2 1 Percentage Year Year SOURCE:

5 Printing in the UK October Industry Performance Key External Drivers continued Percentage of households with internet access The increased availability of information and services on the internet and growing internet use are affecting demand for certain types of printed material such as magazines, directories and books. Consumers access to the internet will continue to grow in , further reducing the need for printed products and providing the largest threat to the Printing industry. Producer price index for paper and paperboard An increase in paper prices inflates the cost of producing printed products and, given the high level of competition present in the industry, it is difficult for industry operators to pass on these costs. This will negatively affect industry profit margins. Those operators able to pass on the cost increases by raising the price of printing products will negatively affect demand for printed materials. The price of paper and paperboard is expected to ease slightly in on previous years. Demand from book publishing The printing of books represents a major source of income for the Printing industry. The level of demand from this sector is heavily reliant on market trends in the Book Publishing industry (IBISWorld report J58.110). Demand from the Book Publishing industry is expected to rise marginally in Current Performance The main markets for printing services are highly fragmented. The industry has a large number of competitors and a vast amount of underused capacity, which results in a highly competitive market with considerable pricing pressures. In addition, the industry faces mounting external competition from non-print marketing and advertising and online distribution and media content hosting. Furthermore, the demand for print is being negatively influenced by a shift in some industries toward online business models. The Printing industry s revenue is expected to contract at a compound annual rate of 6.9% over the five years through In the current year, industry revenue is forecast to decrease by 4.9% to 8.9 billion due to a sluggish economy, weak economy-wide domestic demand, a subdued advertising environment and substitution by digital media. Profit margins will come under significant pressure due to weak volumes, overcapacity, high competition and rising input costs. Some companies have had to update their equipment to remain competitive. The writing is on the wall Factors affecting demand include economic activity, technological developments in the printing and media industries, outsourcing to commercial printers and competition from substitutes. Economic activity has an effect on advertising levels, business services, retail sales and finance sectors that require business forms, legal contracts and annual reports. Retail sales include the sale of books. The printing industry plays an integral part in producing them, so changes in the number of books bought can have a marked effect on the industry. Economic activity affects the rate of business formation as new businesses tend to have up-front stationery requirements.

6 Printing in the UK October Industry Performance The writing is on the wall continued When the UK economy shrank in the global financial crisis, demand for advertising deteriorated and brought down demand for printed advertising materials. The excess capacity created by declining volumes resulted in intensified price competition, forcing margins to narrow. The advertising market is expected to remain weak through due to subdued and uncertain economic conditions. Print advertising is being negatively affected with a growing proportion of marketing budgets going to internet advertising. Margins and consolidation Price is a major competitive factor for the industry due to the limited opportunities available for operators to differentiate themselves. Weak pricing power has occurred due to overcapacity in the industry and weak demand conditions over recent years. The introduction of alternative technologies has reduced demand in some segments, such as for printed business documents and longrun offset printing, accentuating overcapacity and price discounting. Printing input costs will increase over the five years through , due to higher prices for materials, greater demand for creativity and personalisation, more extensive use of colour and demand for faster turnaround. Pricing pressures, weak demand and rising input prices have significantly hurt profit margins. Significant consolidation is occurring in the industry. The number of enterprises is forecast to fall at a compound annual rate of 2.6% in the five years through There has also been consolidation involving smaller companies and plants. The industry is undergoing consolidation because of overcapacity, which has led to negative pricing pressure and left many smaller operators unable to remain profitable. A reduction in the number of small companies and plants has created the opportunity for larger companies to absorb the vacated market share. Demand glitches Advertising campaigns are transforming from being product centric to customer centric as advertisers increasingly seek to create relationships with consumers rather than simply push their products. The rise of new media and digital platforms, changing consumer habits and the increasing availability of data and technology are prompting audience fragmentation, content personalisation, user-generated content and web-based communities. Printed advertising materials, magazines, periodicals, directories, financial reports and business forms are all being affected by growth in online substitutes. However, these trends have offered opportunities for innovative printing companies that have diversified into the digital space, data management and marketing services. The internet is becoming an ever more important communication tool between printers and customers. Online operators typically have low-cost structures and can build significant economies of scale; they are consequently emerging as major competitors in the short print run market. Developments in substitute technologies, such as photocopying equipment, office computer equipment and the internet, will dampen demand for traditional commercial and job printing activities. Commercial printers not exposed to segments that compete with digital media should fare better. These segments include packaging and security printing.

7 Printing in the UK October Industry Performance Other trends The digital printing segment has held up relatively well during the economic downturn in comparison with other product segments. Digital printing is a small but rapidly growing component of commercial printing that allows highquality, variable data customisation, such as personalisation by name, relationship or interests, on short- to medium-run projects. Digital printing also has low set-up costs and allows for lower document obsolescence, lower warehousing costs and more unique documents. Printers that can offer bundled services and complete print management solutions to help deepen customer relationships and provide cross-selling opportunities, will fare better than those that cannot. Although import penetration is low, it is increasing. Imports from countries like China, where labour is cheap, are particularly competitive and are driving down UK selling prices. Exports are forecast to increase over the five years through , mainly due to initiatives by innovative and valueadding UK printing companies such as De La Rue and Communisis. Industry Outlook The Printing industry s performance over the next five years will be influenced by levels of economic activity, the performance and structure of some of the main user industries, technological factors affecting the demand for printed materials and industry costs, overall demand for industry products and levels of capacity in the industry. Industry revenue is forecast to decrease at a compound annual rate of 3.2% over the five years through , to 7.6 billion. Industry revenue is forecast to fall by 1.9% in Profit margins are expected to remain low despite the removal of capacity from UK printing markets. Industry employment is forecast to decline due to weak activity and efforts to boost productivity and profitability. As export levels and consumer spending slowly improve, the UK economy and industrial sector will pick up moderately after the contractions of the previous five years. This should be positive for printed media circulation and % change Industry revenue Year advertising. However, as consumers increasingly choose to access information and entertainment via the internet on mobile devices or TV, sales of and advertising in printed books, magazines, catalogues and directories will fall. Online advertising in the United Kingdom will account for a growing percentage of total advertising spending. 20 SOURCE: Technology threatens demand Book publishers will continue trying to arrest the decline in reading physical copies of books by using new media to increase the visibility and attractiveness of books. There will be strong growth in sales of e-books. Because of the development and ongoing advancement in digital technology, book publishers will increasingly seek shorter print runs, printing on demand, and warehousing and distribution services. Major companies serving the book market, like St Ives, are responding to this trend by providing a more comprehensive range of

8 Printing in the UK October Industry Performance Technology threatens demand continued services to publishers and investing in digital printing facilities. Electronic transactions, the electronic distribution of documents and data and the online distribution and hosting of media content represent significant risks to most industry segments. Over the next five years, demand for bank cheques, business forms and directory printing will decline due to the increasing use of online payments, e-commerce, online forms and photocopying. Online trade journals and magazines will encroach on printed markets. As the retailing, finance and services industries shift away from bricks-and-mortar operations towards online business models, demand for print will fall further because these industries will no longer require the same volume of printed advertising materials, business forms and cheques. The internet will promote trade flows between countries. For example, VistaPrint Limited, an online supplier of customised printed products, generates revenue from UK websites, but has no printing facilities in the United Kingdom. Instead it serves the whole European market from a printing facility in the Netherlands. As manufacturing activity continues moving to low-cost countries like China, more of the printing and support activities associated with manufacturing will follow. Online printing operators offer convenient services and are emerging as significant players in the short print run space, where small businesses make up the majority of the customer base. Websites can provide design templates and allow customers to design documents interactively. Online firms can operate cheaply because they do not have to run bricks-and-mortar shops and can use online tools to streamline their processes. They also find it easier to win customers over a large geographic area, which can reduce unit costs. Larger online providers are likely to be more successful than traditional print providers in catering to small businesses. Structural changes More commercial printers will transform their business focus from manufacturing to services. Commercial printers will continue trying to move up the value chain into document process outsourcing, which involves delegating tasks in the document life cycle to a supplier. Some companies have diversified into data management or marketing services. Commercial printers will also move to offer cross-media products such as multimedia layout, design and delivery. The industry will remain highly fragmented, despite the number of enterprises falling at a compound annual rate of 3.1% over the five years through In the commercial printing segments, larger operators find it easier to raise funds for investment, locate production in low-cost regions, accrue economies of scale and offer a more diverse range of value-added services. These factors will provide larger operators with competitive advantages and prompt consolidation.

9 Printing in the UK October Industry Performance Life Cycle Stage Unit selling prices have fallen The market is generally saturated Digital solutions are replacing some printed solutions Technological change in the industry is occurring only slowly % Growth in share of economy Maturity Company consolidation; level of economic importance stable Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets Key Features of a Decline Industry Revenue grows slower than economy Falling company numbers; large firms dominate Little technology & process change Declining per capita consumption of good Stable & clearly segmented products & brands 10 5 Quantity Growth Many new companies; minor growth in economic importance; substantial technology change 0 Book Publishing Paper Stationery Manufacturing -5 Newspaper Publishing Paper & Paperboard Manufacturing Printing Dye & Pigment Manufacturing Decline Shrinking economic importance % Growth in number of establishments SOURCE:

10 Printing in the UK October Industry Performance Industry Life Cycle This industry is Declining The Printing industry is considered to be in decline. Industry value added is expected to decrease at a compound annual rate of 5.9% in the 10 years through , while the UK economy is expected to grow at a compound annual rate of 1.3% over the same period. This means that the industry is accounting for a declining share of the UK economy. The industry has excess capacity and firms have been consolidating. Falling volumes and declining unit selling prices have weighed down on industry revenue, profit and value added. Digital solutions are replacing some printed solutions. Commercial printing business must make substantial capital investments over time in new equipment and technology to remain competitive. However, technology in the industry tends to be influenced more by suppliers (such as equipment manufacturers) than by commercial printers. Some commercial printers have developed technology alliances with equipment manufacturers to collaborate on the development of printing solutions. Relatively recent innovations have promoted growth in some market segments, such as digital printing, which can offer customers convenience and potentially lower costs. Some printers are expanding vertically to capture a share of the print supply chain, such as in document management. They are also expanding horizontally, which can offer improved margins and the ability to lock in customer bases.

11 Printing in the UK October Products & Markets Supply Chain Products & Services Major Markets Globalisation & Trade Business Locations Supply Chain KEY BUYING INDUSTRIES J Book Publishing in the UK Book publishers require printers to produce books. J Newspaper Publishing in the UK Newspaper publishers can outsource some printing, such as insert printing. J Publishing of Learned Journals in the UK Journal publishers often outsource printing. J Magazine Publishers in the UK Consumer and business journal publishers often outsource their printing needs. KEY SELLING INDUSTRIES C Paper & Paperboard Manufacturing in the UK Manufacturers supply paper and paperboard for printing. C Dye & Pigment Manufacturing in the UK Printing ink is a key input to any printed product. Products & Services Trade advertising material and catalogues The largest segment of the industry is the printing of trade advertising material on paper-based products. Products in this segment include posters, yearbooks, point-of-sale printing, direct mail, one-piece mailers and commercial catalogues. This segment accounts for an estimated 23.4% of industry revenue. The use of catalogues by retailers has reduced over the past five years as consumers are able to browse and order products online, limiting the need for physical catalogues. Trade-advertising printing has retained a fairly solid proportion of the industry as direct mail and one-piece mailers remain an effective way of advertising. Books, brochures and leaflets The second-largest product segment includes the printing of books, brochures and leaflets, and accounts for an estimated 17.1% of industry revenue. The number of books printed in the United Kingdom is falling for two reasons. Firstly, the rise of e-books, where consumers can purchase and read books on tablets and phones, has reduced demand for printed books. Secondly, many UK books are now printed overseas at a lower cost. Brochures and leaflets have generated a relatively consistent proportion of industry revenue. This product segment has fallen as a percentage of industry revenue over the past five years. Newspapers, magazines, journals and periodicals The industry also includes the printing of newspapers, magazines, journals and periodicals that appear less than four times a week, and accounts for an estimated 14.3% of industry revenue. The need for printing newspapers and magazines is falling as most of these can be accessed online, often at no cost. However, the printing of weekly regional newspapers that are still distributed directly to houses is less under threat from online material. Printing onto non-paper materials The industry includes printing directly onto non-paper materials, such as plastic, glass, metal, wood and ceramics. This segment is expected to account for 13.3% of industry revenue. The importance of the segment has grown over the past five years as it is not under threat from online substitutes, unlike most other segments. Security printing Security printing covers the printing of a wide range of items, including postage

12 Printing in the UK October Products & Markets Products & Services continued stamps, stamped envelopes, cheque books, banknotes, gift vouchers, driving licences and social security benefit books. Security printing is expected to account for 7.5% of industry revenue. The importance of these products has sheltered the segment, allowing it to grow as a proportion of revenue over the past five years. Other products Other products printed by the industry include cards, pictures and photographs, business cards, calendars, maps, labels, sporting tickets, music sheets and many other products. Products and services segmentation ( ) 13.3% Printing onto non-paper materials 7.5% Security printing 24.4% Other Total 8.9bn 14.3% Newspapers, magazines, journals and periodicals 17.1% Books, brochures and leaflets 23.4% Trade advertising materia l and catalogues SOURCE: Major Markets Publishers Publishers of books, newspapers, magazines, journals and periodicals all use the industry s services to print their content. Publishers are estimated to account for 26.2% of industry revenue. The proportion of revenue generated from publishers has declined over the past five years, largely due to the emergence of online media and e-books. Consumers are increasingly able to read up-to-date news and current affairs online, reducing the demand for printed copies of newspapers and magazines. Similarly consumers are able to purchase e-books instead of acquiring physical copies. Major market segmentation ( ) 11% Financial, insurance and legal firms 13.3% Manufacturers 27.7% Other Total 8.9bn 21.8% Retailers 26.2% Publishers SOURCE:

13 Printing in the UK October Products & Markets Major Markets continued Retailers Retailers are the second largest downstream market for the industry and are estimated to account for 21.8% of industry revenue. Retailers are major users of printed advertising, using direct mail, one piece mailers and posters. Retailers also use point-of-sale material and signs, and many use catalogues. This market has remained important to the industry, primarily through printed advertising and point-of-sale materials. Manufacturers Manufacturers mainly use printers for labels and wrappings for products, while stationery manufacturers often outsource the printing function to commercial printers. Manufacturers are estimated to account for 13.3% of industry revenue. Demand from manufacturers has been consistent as the presentation of goods remains fundamental for most products. Financial, insurance and legal firms Finance industries purchase vast amounts of cheques, business forms, reports and documents, while insurance firms also use printing services for brochures, leaflets and other promotional materials. This segment is estimated to account for 11.0% of industry revenue. Other markets Other markets include wholesalers, charities, accounting firms, consulting companies and various other enterprises. Globalisation & Trade Level & Trend Exports in the industry are Medium and Decreasing Imports in the industry are Medium and Decreasing The Printing industry has a low level of globalisation, with a large number of small establishments catering to localised or niche markets. Globalisation is kept low in the industry due to the ready availability and low-cost nature of printing equipment, the general nature of most printing work and the need for close contact with clients. Firms with international operations tend to offer specialised value added services. Printing imports are expected to be valued at million in The value of imports is forecast to decrease at a compound annual rate of 3.6% over the five years through Although the value of imports has been declining, imports are satisfying a growing proportion of domestic demand. This is partly a result of many book publishers printing overseas and importing the books back to the United Kingdom. Imports satisfy an estimated 5.8% of domestic demand, up from 4.9% five million Industry trade balance Year Exports Imports Balance years earlier. Printing exports are expected to be valued at million in , accounting for an estimated 6.0% of industry revenue. The value of exports is forecast to decrease at a compound annual rate of 2.6% over the five years through SOURCE:

14 Printing in the UK October Products & Markets Business Locations SCOTLAND 4.7 NORTHERN IRELAND 1.8 NORTH EAST 2.8 NORTH WEST 9.6 YORKSHIRE 8.0 Establishments Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable WALES 3.5 WEST MIDLANDS 8.1 SOUTH WEST 8.7 EAST MIDLANDS 8.5 EAST OF ENGLAND 11.7 LONDON 15.6 SOUTH EAST 17.0 SOURCE:

15 Printing in the UK October Products & Markets Business Locations Factors influencing the location of the industry s activities include the distribution and concentration of the population, economic activity and the performance of advertising and publishing industries. Larger establishments often operate in specific markets and therefore tend to be spread less evenly across the nation. The South East and London have the largest proportion of industry establishments accounting for 17.0% and 15.6% respectively. This is hardly surprising given the vast amount of business activity present in each region, particularly London. The South East is especially popular for printers as while it is in close proximity to London, it is a cheaper option than actually locating in London. The East of England is also popular with printers for the same reason. Other regions are generally in line with the spread of population and economic activity. Percentage Distribution of establishments vs. population East Midlands East of England London North East North West Northern Ireland Scotland South East South West Wales West Midlands Yorkshire Establishments Population SOURCE:

16 Printing in the UK October Competitive Landscape Market Share Concentration Key Success Factors Cost Structure Benchmarks Barriers to Entry Market Share Concentration Level Concentration in this industry is Low The Printing industry has a low level of market concentration, with the four largest operators holding a combined market share of 9.9% and the largest firm contributing just 3.4% of industry revenue. This illustrates the fragmented nature of the Printing industry, which has a very large number of firms in the industry, each with a small share of the market. In the industry, 81.3% of establishments employ fewer than 10 people and just 1.2% of establishments employ more than 100. The industry has clearly suffered from overcapacity over recent years. The deteriorating demand for printing, owing to the rise in technology adoption, has left a large number of firms competing for a declining volume of work. The industry is consolidating as it adjusts to the declining level of demand. Establishments by employment size, 2012 Employees Share 0 to to to to to to SOURCE: OFFICE FOR NATIONAL STATISTICS Additionally, the rapid pace of technological change, which has increased capital requirements, has allowed the larger players to gain further advantage over the smaller operators. Many smaller firms are finding it increasingly difficult to remain in the industry. Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: Having marketing expertise Given the high level of competition in the industry, marketing expertise can be important. In small print run markets, it can be important to develop relationships with local business. Therefore, franchise systems have been developed in these markets. Access to highly skilled work force Given the serious shortage of skilled tradespeople in the Printing industry, firms that can ensure an adequate supply of labour have a distinct market advantage. Access to the latest available and most efficient technology and techniques New technology can yield time efficiency, reductions in labour costs and improvements in product quality. Compatibility of systems enabling efficient file transfer (between customer and printer) can be important. Prompt delivery to market Response time is a competitive factor. Scheduling, project management skills, machines and systems affect response times. Customers often use services located near them, although online printing services are reducing the importance of location. Optimum capacity utilisation The size of print runs can affect capacity utilisation as committed forward orders. Price is a major competitive factor Price is a major competitive factor due to the limited opportunities for companies to differentiate in other ways. Industry overcapacity can result in heavy price discounting. Cost Structure Benchmarks Cost structures vary between industry segments. For example, quick printing and digital printing have relatively high labour costs but low raw material costs. A company s cost structure is also affected by the extent of printing automation, the scale of operations and diversification into complementary services.

17 Printing in the UK October Competitive Landscape Cost Structure Benchmarks continued Profit Profit margins are relatively low in this industry, but can vary by product segment and region. Profit margins tend to be very slim in the long-run printing segments, relative to the short-run printing segments. Companies offering value added services, such as data management and marketing services, tend to generate relatively higher profit margins compared with less-diversified printers. Profit margins have fallen over the past five years from an estimated 8.0% of revenue in to 5.3% in This is partly due to volatile conditions during the recession, which forced average industry margins down to just 1.9% in Although economic conditions have put downward pressure on industry margins, they have also been adversely affected by overcapacity and the resulting severe competition. Purchases The breakdown of material costs varies according to the type of product produced. For example, paper costs tend to make up a smaller percentage of total costs for high-colour marketing and promotional material compared with low-colour products such as printed forms. The primary materials used in this industry are paper, ink, film, offset plates, chemicals and cartons; paper accounts for the majority of total material costs. Changes in the market price of paper do not significantly affect the operating results of many commercial printing businesses, as these firms usually pass on paper price increases to their customers. The cost of purchases is expected to have increased marginally as a percentage of total costs and revenue from through due to an increase in prices for materials while competitive pressures kept down growth in selling prices for printers. Purchases are estimated to account for 56.2% in Labour Wages and salaries are estimated to represent 26.7% of revenue in This is high compared with the average for all manufacturing industries in the Sector vs. Industry Costs Average Costs of all Industries in sector ( ) Industry Costs ( ) Percentage of revenue P r o fi t Rent Utilities Depreciation Other Wages Purchases 20 0 SOURCE:

18 Printing in the UK October Competitive Landscape Cost Structure Benchmarks continued United Kingdom, due to the relatively labour-intense nature of the industry. Employment costs are expected to have decreased as a percentage of revenue over the past five years. Low demand and over capacity has caused the number of industry employees to fall as printing companies consolidate operations. Other costs Depreciation is estimated to absorb approximately 4.0% of industry revenue. Printers have invested more into more efficient equipment in order to reduce the size of their workforce and to gain an advantage in a heavily competitive industry. Other costs principally comprise of rent payments, energy costs, communications costs, accounting, advertising and software. Barriers to Entry Level & Trend Barriers to Entry in this industry are Low and Increasing Barriers to entry in the Printing industry are relatively low, as the large number of firms demonstrates, but they are increasing.. However, the industry is already at overcapacity as the amount of work available is falling at a slower rate than the number of firms in the industry. Therefore, any prospective entrants will find it difficult to compete with so many other firms for the work available. However, barriers vary by industry segment and are higher in the more capital-intensive segments. Firms in capital-intensive segments usually deal with large customers (often on term contracts) and have large print capacities that can cost-effectively provide long print runs. A process of consolidation is occurring in most of these segments, indicating that economies of scale and Barriers to Entry checklist Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance Level High Low Decline Medium Medium Light None SOURCE: scope are rising. Barriers are relatively low in some segments, such as quick and digital printing. Online printers are emerging as major competitors in the short print run space, and these operators have the potential to build significant economies of scale.

19 Printing in the UK October Major Companies De La Rue plc St Ives plc Other Companies Major players (Market share) St Ives plc 2.7% 93.9% Other De La Rue plc 3.4% SOURCE: Player Performance De La Rue plc Market share: 3.4% De La Rue plc is a British company and is the world s largest commercial security and bank note printer. The company s headquarters are in Basingstoke, Hampshire, but it also has six other operating bases in the United Kingdom. It claims to have been involved in the design and production of over 150 national currencies, a range of security products and identity systems, and provides cash processing and software solutions. De La Rue employs approximately 4,000 people worldwide. The company acquired Portals Limited in 1995, Harrison and Sons in 1997 and Philips Cartes et Systemes in De La Rue won a contract to print currency for the Bank of England, taking over the Bank s manufacturing operation, and has printed the currency ever since. The company operates under four divisions: currency, cash processing solutions, security print and identity systems. Both the currency division and the security print division fall into the Printing industry. The group divested De La Rue plc industry-related performance* Year Revenue ( million) (% change) N/C *Estimate SOURCE: ANNUAL REPORT AND IBISWORLD itself of its cash systems business, excluding cash processing solutions, on 1 September 2008, which resulted in a gain on disposal of million (net of tax) in The company s annual report classified revenue and profit from the cash systems business under discontinued operations for and De La Rue plc financial performance* Year Revenue ( million) (% change) Operating Profit ( million) (% change) N/C 96.5 N/C ** *Discontinued operations and exceptional items excluded from results for all years **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD

20 Printing in the UK October Major Companies Player Performance continued Financial performance De La Rue s UK printing revenue is estimated to fall at a compound annual rate of 2.1% over the five years through to reach million. The company suffered from a significant amount of volatility over the past five years. Revenue from the company s UK printing operations is estimated to have fallen by over 30.0% in because it sold a lower volume of products. De La Rue s currency segment was the worst hit but its security-printing segment also performed poorly. The company rebounded the following year with revenue growth of 18.9%, as a strongly performing currency segment drove the company forward. The company s security printing segment performance was a little more subdued as lower holographic component sales and a drop in demand for brand licensing products held back revenue growth. Poor domestic demand again forced revenue to decline sharply in In May 2011, De La Rue announced an improvement plan targeted at achieving an operating profit in excess of million within three years by restoring revenue growth and delivering significant cost reductions. These initiatives have resulted in exceptional charges, which have negatively affected profit in the short term but will have long-term benefits. Player Performance St Ives plc Market share: 2.7% St Ives plc provides printed products and marketing services. The company was founded in 1964 and has grown over the years through a series of acquisitions, including Clays in 1985, Hunters Armley in 1998, SP Group in 2004, Service Graphics in 2006 and Occam in The company s print segment, which accounted for 84.0% of external sales in , supplies point of sale materials (27.0% of company sales in ), direct response printing (24.0%), book printing (23.0%) and sales for exhibitions and events (12.0%). The acquisition of Occam in 2010 signified a different direction for the St Ives plc (print segment) financial performance Year* Revenue ( million) (% change) N/C ** ** *Year end July **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD St Ives plc financial performance Year* Revenue ( million) (% change) NPAT ( million) N/C ** ** *Year end July **Estimate SOURCE: ANNUAL REPORT AND IBISWORLD

21 Printing in the UK October Major Companies Player Performance continued company as it looked to reshape the group and redistribute its focus on to marketing services. The company movement into this sector was reaffirmed by the acquisitions of Tactical Solutions, Response One and Pragma in The company s print segment is now contributing a declining share of the company s revenue, after many decades of it being the company s primary focus, however it still contributes approximately 80.0% of revenue. Financial performance Revenue generated by St Ives print segment has declined at an estimated compound annual rate of 8.7% over the five years through to reach million. While the company has struggled with the effects of the financial crisis, it has also been a period of change as the company embarked on a new business direction. For , St Ives reported lower revenue, reflecting lower prices and an unwillingness to conduct unprofitable business. However, it reported higher profit, aided by cost reduction and efficiency initiatives. In November 2011, the company announced the future closure of two sites that printed company reports and CD/DVD inserts. During the first half of the year through July 2012, the company reduced capacity in its printing business and acquired equity in an e-book conversion software business. As a consequence, the company-printing segment is expected to have generated lower revenue in and will do so again in Other Companies Polestar UK Print Ltd Estimated market share: 2.4% Polestar is a web offset, gravure, sheet fed and digital printer. It also offers a number of complementary services. The company s market sectors are newspaper supplements, magazines, books and directories, direct mail, financial printing and travel and retail printing. Polestar was created in 1998 when Investcorp, a private equity firm, merged Watmoughs Holdings and the British Printing Company to create the Polestar Group. A debt-for-equity swap in December 2006 cost Investcorp its entire million investment in the Polestar Group, which became owned by its senior debt holders, including JP Morgan, Deutsche Bank, RBS and Bluebay. An affiliate of US private equity firm, Sun European Partners, acquired Polestar UK Print in April 2011 for an undisclosed amount. Polestar UK Print operates from about 10 sites in the United Kingdom, with headquarters in Bedfordshire in the East of England. In 2011, the company sold its Hungarian printing division to concentrate on its UK business. In January 2012, Polestar stated an intention to begin a 90-day consultation into the future of a printing, binding and distribution facility located at Colchester. In March 2012, Polestar decided to retain the Colchester plant after employees Polestar UK Print Ltd financial performance Year* Revenue ( million) (% change) Operating Profit ( million) *Year end September SOURCE: DUEDIL

22 Printing in the UK October Major Companies Other Companies continued agreed to a reduction in wage rates and a longer working week. Polestar UK Print s revenue has fallen relatively quickly over recent years as the company has struggled with industry conditions. The company stated that both volume and pricing in the printing market have been under significant pressure as the result of overcapacity in printing markets and difficult economic conditions. Company revenue was stated as million in , representing a fall of 7.1% on the previous year, and revenue is expected to fall again in the following year. Walstead Investments Ltd Estimated market share: 1.4% Walstead Investments Ltd is a UK-based private equity company backed by Bank Leumi that has recently entered the local Printing industry and has grown significantly through acquisitions. Initially, in December 2008, Walstead acquired Wyndeham Press Group Ltd for approximately 63.0 million. Wyndeham is a major print supplier to Britain s leading publishers, national and local businesses and the travel, education and public sectors. Wyndeham Group has six large-scale sheet-fed and web offset printing facilities, offering short- and long-run magazines, catalogues and brochures, and a range of commercial print products. Wyndeham Press Group generated revenue in the region of million, prior to the acquisition. On 27 July 2009, Walstead acquired Southern Binders Ltd and Southern Holdings Ltd, including its subsidiary Southern Print Ltd, from Newsquest Media (Southern) Ltd for an estimated 66.0 million. The transaction made the group the third-largest commercial web offset printer of magazines and publications in the United Kingdom. Pro-forma annual revenue of Southern Print was approximately million. In November 2010, Walstead Investments Ltd acquired the assets of Apple Web Offset from Trader Media Group. Later, in April 2011, the company acquired a magazine and commercial heatset web offset printing business from St Ives plc. For the year through December 2011, Walstead posted revenue of million (up 54.2% on 2010) and an operating loss of 11.5 million. Communisis plc Estimated market share: 1.1% Communisis plc helps customers to plan, create and deliver marketing communications, both in print and online. These services include data analysis, creative input, campaign management, direct mail and postal sorting. The company also derives a significant percentage of its revenue from transactional printing services, by printing cheques, bills and statements. The group is broadening its service offerings and diversifying it client portfolio away from financial services (which accounted for 51.0% of company revenue in 2011, down from 63.0% in 2009). During 2011, the company employed 1,384 people. In 2012, Communisis plc generated total revenue of million and produced an operating profit before exceptional items of 8.8 million. IBISWorld estimates that Communisis revenue from printing amounted to million in

23 Printing in the UK October Operating Conditions Capital Intensity Level The level of capital intensity is Medium Overall, the industry has a medium level of capital intensity. On average, 6.7 is spent on labour for every 1.0 spent on capital. Employment costs are expected to represent about 26.7% of revenue in , which is high compared with the average for all manufacturing industries. This is due to the industry having a relatively high level of labour input, due in part to the nature of commercial printing and variations in the size and nature of print jobs. The industry also invests a relatively large amount into capital inputs and this trend has gained in importance over recent years. Firms have been keen to reduce costs to adapt to the declining level of demand in the industry, which has involved reducing the size of their workforces. Making capital Capital intensity Capital units per labour unit Economy Manufacturing Printing in the UK Dotted line shows a high level of capital intensity SOURCE: improvements to improve the level of efficiency has been popular as it can allow firms to maintain the level of output while still reducing the wage bill. Tools of the Trade: Growth Strategies for Success New Age Economy Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan. Labour Intensive Traditional Service Economy Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth. Book Publishing Newspaper Publishing Printing Paper & Paperboard Manufacturing Dye & Pigment Manufacturing Paper Stationery Manufacturing Capital Intensive Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products. Change in Share of the Economy SOURCE: