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Graphics & Mail Market Overview inc.jet Tech Forum Jim Kelley/ August, 2019

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Jim Kelley info

• 20 years at HP Specialty Printing Systems (SPS) • Before HP - 17 years in the Printing/Graphics market working for

offset sheet fed and web offset printing companies & early days of desktop publishing

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Yep……………..I’m a Dinosaur!

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SPS charter & markets SPS sells HP TIJ technology to OEM partners to extend into Fields of Use where HP would not otherwise sell branded products, leveraging HP technology and cost structure Postage Product ID Direct Mail Mail Addressing

Transaction Desktop Labels Security & Other Bio Printing

Digital Postage (indicia) Variable Data Imprinting Inserts and Trans-promo

Desktop, Prime and Durable Labels

Messaging & addressing Product Package Coding

(e.g., Drug Dispensing) (e.g., Passports, CD/DVD Duplication)

Point of Sale Receipts & Check Processing

Example product solutions using SPS technology SPS provides printheads, inks, enablers, imagers, modules and other technology to partners to enable technological solutions

Postage Product ID Direct Mail Mail Addressing

Transaction Desktop Labels Security & Other Bio Printing

HP D300 Drug Dispensing

TIJ 2.5 Cartridge TIJ 4.0 Module TIJ 4.0 Module TIJ 2.5 Cartridge

TIJ 1.0 Cartridge OJ Pro 8100 Mech SI 1100 Mech

Trends

• Analog to Digital Transformation continues – However analog is still holding on

• Look at recent Flexo resurgence • Hybrid solutions utilizing digital on analog to combine dynamic with static content

• Consolidation of processes – No longer can specialize in one aspect need to be a complete solution provider to the customer – Ken Garner’s AMSP/MFSA talk

• Consolidation of companies – Mergers & acquisitions

• Where are the medium size printing/graphics companies?

• Consolidation of industry Trade Shows • Print is merging with Label Expo • Print United starting up from SGIA & combining all multiple printing segments

• Successful companies are finding a niche in high margin business – Strategic selling “UP” to Marketing instead of Purchasing – Playing the lower price game is not winning strategy

• Printing companies still utilize older technologies while adding newer technologies – Letter press is still viable in the production portfolio along with latest digital solutions

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Just my thoughts………..

Trends US Print Landscape • Significant change since beginning of the Century

– ~25% decline in Gross output – 2000 was $107.2 billion and in 2017 it was $80.3 billion – Two recessions during this time frame obviously contributed – Printers responded by

• Increasing overall operation efficiency – capacity utilization – reducing employee numbers – purchasing newer technology

• Closing facilities and the CONSOLIDATION thing with Mergers/Acquisitions

• Decline of 1/3 of Printing Establishments – 42,000 companies in 2000 – 29,000 companies in 2017

• 45% decline in print employment – 807,000 in 2000 to 441,000 in 2017

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Trends US Print Landscape • Fewer employees per facility

– ~14% Decline – 18.1 employees per shop in 2000 to 15.3 employees per shop in 2017

• Print productivity output per hour increased by 1/3 – 81 in 2000 to 108 by 2017

• Average hourly earnings have increased – $19.97 in 2006 – $23.49 in 2017

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Trends Competitive Landscape – Looking at 2018 Top 400 US Printer • Sales of Top 20 printers (top 5%) account for 67% of total sales

• Top 3 Printers – Sales per plant were $33.5 million – 2 – ½ times greater than the remaining 397 printers – Employees per plant were 194.7

• 3-1/2 times larger that the other printers

– Top 3 performed not as well in sales per employee • $172,000 or $60,000 less than the $233,000 of the remaining 397

• Top 400 US Printers comparison with all other US Printers – Total sales of Top 400 were similar - ~55% of total sales – Top 400 sales per plant were $15.7 million – 11.2 X more than the $1.4 million for others – Top 400 employees per plant was 77.4 which is 8.9% X greater than others – Top 400 number of employees is similar with all others @ 49% – Top 400 sales per employee was $203,000 or $41,000 more than the $162,000 of others

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Print & electronics readership usage Internet access & smartphone use impacts print use

Publication Media Readership usage Newspaper Print

43%

Online

70%

Book Print 48% E-book 30%

Magazine Print 47% Online 27%

Coupon Print 53% Electronic 50%

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Printing Segments

11

Book publishing

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2018 Revenue Estimate:

$26.1 Billion • E-book demand plateaus • Average hours spent

reading continues to decline

• Independent book store numbers continues to drop

Estimated Revenue by Segment

Other Textbooks Professional, Technical, Scholarly Adult Trade Children's

Adult Trade - $6.3 B 24.0%

Professional, Technical, Scholarly - $7.2B

27.5%

Textbooks $8.3 B 31.6%

Other-$2.7 B 10.3%

Children’s- $1.7B 6.6%

*Source: report by Borrell Associates for Association for PRINT Technologies

Magazine & periodical publishing

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• New Title Launches continue

• More read print than Digital

• Average hours spent reading continues to decline

• Circulation, subscriber continues to drop

2018 Revenue Estimate:

$27.3 Billion Estimated Revenue by Segment

Other EntertainmentAcademic, Professional General Interest

Other - $1.8.9B 6.5%

*Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

Entertainment - $8.9B 32.8%

Academic, Professional - $6.3%

23.1%

General Interest - $4.4B 16.3%

Political, Social, Business - $3.3B

12.2%

Home Living - $2.6B 9.4%

Newspaper publishing

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2018 Revenue Estimate:

$31.8 Billion

• Revenue Decline is not over

• Generational gap continues

• Average hours spent reading continues to decline

• Digital revenue, subscriber count grows

Newspaper Publishing

Print Advertising Circulation Third-party Printing Pre-Print Distribution Other

*Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

Print Advertising-$20.9B 65.5%

Circulation - $7.6B 23.9%

3rd Party Printing - $1.4B 4.5%

Pre-Print Distribution - $0.62B

1.9%

Other - $1.33B 4.2%

Commercial Printing

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2018 Revenue Estimate:

$74.9 Billion

• Direct Mail remains strong • Catalogs remain popular • Desktop printers • USPS continues with labor

cost issues and decline in 1st class mail – (Standard Mail is flat)

*Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

Commercial Printing

Lithographic Digital Flexographic Screen Book Gravure Other

Lithographic - $30.7 B 41%

Digital - $10.6 B 14.2%

Flexographic - $8.2 B 11%

Screen - $7.4 B 9.8%

Book - $4.4 B 5.9%

Gravure - $2.8 B 3.8%

Other - $10.8 B 14.4%

Newspaper readership

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0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Online

Print

Online

Print

Online

Print

Online

Print

BABY

BOO

MER

S:19

46-1

964

GEN

ERAT

ION

X: 1

956

-197

9M

ILLE

NIA

L:19

80-1

994

GEN

Z:

1995

-201

2

Newspaper Readership by Generation

*Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

Book purchases

Confidential information *Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%

Bought E-Books

Bought Printed Books

Bought E-Books

Bought Printed Books

Bought E-Books

Bought Printed Books

Bought E-Books

Bought Printed Books

BABY

BOO

MER

S:19

46-1

964

GEN

ERAT

ION

X: 1

956

-197

9M

ILLE

NIA

L:19

80-1

994

GEN

Z:

1995

-20

12

Purchased Books by Generation

Periodical readership

Confidential information *Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

E-Zines

Printed Periodicals

E-Zines

Printed Periodicals

E-Zines

Printed Periodicals

E-Zines

Printed Periodicals

BABY

BOO

MER

S:19

46-1

964

GEN

ERAT

ION

X: 1

956

-197

9M

ILLE

NIA

L:19

80-1

994

GEN

Z:

1995

-20

12

Periodical Readership by Generation

Purchased from catalog

Confidential information *Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%

1X or More

Didn't Purchase

1X or More

Didn't Purchase

1X or More

Didn't Purchase

1X or More

Didn't Purchase

BABY

BOO

MER

S:19

46-1

964

GEN

ERAT

ION

X: 1

956

-197

9M

ILLE

NIA

L:19

80-1

994

GEN

Z:

1995

-20

12

Purchased from Catalog by Generation

Purchased from direct mail & other

Confidential information *Source: 2015 & 2019 report by Borrell Associates for Association for PRINT Technologies

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%

1X or More

Didn't Purchase

1X or More

Didn't Purchase

1X or More

Didn't Purchase

1X or More

Didn't Purchase

BABY

BOO

MER

S:19

46-1

964

GEN

ERAT

ION

X: 1

956

-197

9M

ILLE

NIA

L:19

80-1

994

GEN

Z:

1995

-20

12

Purchased from Direct Mail/Other by Generation

Mail Segment

21

USPS volume trends

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First half FY19 for USPS shows First Class Mail down 3% and Standard Mail flat vs. last year

• Businesses continue to conduct more electronic transactions with consumers putting downward pressure on first class mail

• Strong digital media channels and success seen with omni-channel marketing efforts will cause small and medium sized businesses to rely on physical marketing materials providing opportunities for Standard mail

• Strong e-commerce will continue to disrupt brick and mortar retail driving growth in package volume

63.8 62.4 60.9 59.7 57.3

80.3 80.0 80.9 78.3 77.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2014 2015 2016 2017 2018

Pieces of Mail - USPS (in billions)

First class mail Standard mail

CAGR (5 yr): First class -2.6% Standard -0.9%

Print Opportunities

23

Print Opportunities in this changing landscape Print vs. Digital • Digital media delivery has challenges too

– Ad-blocking Software prevents ~ 2/3 of ads ever being seen – Email Spam a filters & consumers deleting unopened emails

• Print has an advantage of more likely being seen – No on-line ad blocking – TV ad muting or the “TiVo” effect – Radio station surfing when ads come on

• 2018 eMarketer study - ~40% of time on mobile does not actually compete with print because using for – Social networking – Gaming – Messaging

• 30% of time with audio & 20% of time with video are spent with music or non-editorial content – Print needs to incorporate mobile & digital into their media to keep relevant

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Print Opportunities in this changing landscape Segment outlook • Magazines

– Single copy sales & subscriptions have declined – Moving to Niche markets that perform better and have a more loyal and connected readership

• Newspaper – Continue to struggle – Local newspapers should perform better than regionals

• Better able to reach & connect with readers because of their local focus

• Book – Book publishing will fare better than magazines & newspapers – 2015 printed books represented 80+% of all WW book sales (according to Deloitte Consulting) – A 2018 NPD study reported U.S. printed book sales volume has grown every year since 2013 with 2018 seeing a

1.3% increase

• Packaging – Represents the strongest area of growth for U.S. commercial printers representing over 50% of print product

revenue & has positive growth prospects

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Print Opportunities in this changing landscape Prints Advantage in a Digital World • People continue to want & respond to Print

– The DMA Statistical Fact Book reports that Millennials (who have a strong relationship with technology) respond to Direct Mail

– USPS Mail Moments Review has found that 64% of Millennials would rather scan for useful information in the mail than in email

• Some of the print advantages in the digital world include – Proactive: Print is engaging, only 10% of media interactions are non-screen based – Noticed: Direct Mail has an estimated 80% open rate – Memorable: Print has a 75% higher brand recall than digital – Tactile: Touching something increases its perceived brand value – High Tech: Linking print to digital “wows” and engages customers by using NFC Printing, QR Codes, AR, VR, etc.

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*Source: 2015 & 2019 report by The Economist Intelligence Unit for Association for PRINT Technologies

Thank you

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