Australian Printing Industry Australian Printing Industry

Economic Trends and ProspectsEconomic Trends and Prospects

Presentation by:Presentation by:

Hagop TchamkertenianHagop Tchamkertenian

National Policy & Research ManagerNational Policy & Research Manager

Printing Industries Association of AustraliaPrinting Industries Association of Australia

March 2007March 2007

Presentation OverviewPresentation Overview

Economic performance of the Australian Printing Economic performance of the Australian Printing IndustryIndustry Economic growthEconomic growth Sales and pre-tax profitsSales and pre-tax profits Capacity utilisationCapacity utilisation Capital expenditureCapital expenditure Primary barrier to increased productionPrimary barrier to increased production Production, sales, selling prices and net profits, Production, sales, selling prices and net profits,

debtors, labour availability, average wagesdebtors, labour availability, average wages State by State comparisonsState by State comparisons

Will things get better? An outline of industry Will things get better? An outline of industry challengeschallenges

Is there hope? – Is there hope? – Printing IndustriesPrinting Industries programs and programs and initiativesinitiatives

Interpretation of the ChartsInterpretation of the Charts

The official data is presented in percent or percentage basisThe official data is presented in percent or percentage basis Non-official data sourced from the Printing Industry Trends Non-official data sourced from the Printing Industry Trends

report is mostly presented on balance percent basisreport is mostly presented on balance percent basis Balance percent is calculated by subtracting the proportion of Balance percent is calculated by subtracting the proportion of

respondents reporting improvements from the proportion respondents reporting improvements from the proportion reporting deteriorationreporting deterioration

For example: if 40 percent expect business conditions to For example: if 40 percent expect business conditions to improve and 25 percent expect business conditions to improve and 25 percent expect business conditions to deteriorate then the balance percent is positive 15 percent (40 deteriorate then the balance percent is positive 15 percent (40 less 25)less 25)

While balance percent outcomes do not measure magnitude While balance percent outcomes do not measure magnitude of change for a given indicator, they represent directional of change for a given indicator, they represent directional movement (trend) for a given indicator. Positive balance movement (trend) for a given indicator. Positive balance percentages imply improvementspercentages imply improvements

Compared to Australian economy printing industry remains Compared to Australian economy printing industry remains volatilevolatile

Past 5 years: 11 periods of economic downturn & 4 Past 5 years: 11 periods of economic downturn & 4 recessionsrecessions

Comparative Rates of Growth

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Dec

-01

Mar

-02

Jun-

02

Sep

-02

Dec

-02

Mar

-03

Jun-

03

Sep

-03

Dec

-03

Mar

-04

Jun-

04

Sep

-04

Dec

-04

Mar

-05

Jun-

05

Sep

-05

Dec

-05

Mar

-06

Jun-

06

Sep

-06

Dec

-06

Per

cent

Printing

Australian economy

Source: ABS

Printing once of twoPrinting once of two sectors reporting declining activitysectors reporting declining activity Increased reported activity in retail trade, finance, Increased reported activity in retail trade, finance,

property and communications industries good for printing property and communications industries good for printing

industryindustry

Sectoral Growth Rates - Year to December 2006

-2 0 2 4 6 8 10

Communication services

Property & business services

Personal services

Wholesale trade

Finance & insurance

Accomodation, cafes & restaurants

Mining

Retail trade

Health & community services

Food, beverages & tobacco

Printing

Wood & paper products

Manufacturing

Construction

Australian economy

Percent

Source: ABS

Industry sales rebound Industry sales rebound Can sales be sustained? Can sales be sustained?

Sales - Printing

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Dec

-01

Mar

-02

Jun-

02

Sep-

02

Dec

-02

Mar

-03

Jun-

03

Sep-

03

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Perc

enta

ge c

hang

e

Source: ABS

Cost pressures again an issue in most recent Cost pressures again an issue in most recent period period

Impact on Margins - Printing

-3.5

-2.5

-1.5

-0.5

0.5

1.5D

ec-0

1

Mar

-02

Jun-

02

Sep-

02

Dec

-02

Mar

-03

Jun-

03

Sep-

03

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Perc

enta

ge c

hang

e

Materials used

Articles produced

Source: ABS

Publishing sector seems to have ability to charge Publishing sector seems to have ability to charge higher prices but not printinghigher prices but not printing

Moving up the value chain does not necessarily Moving up the value chain does not necessarily mean higher pricesmean higher prices

Price Index of Articles Produced

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Dec

-01

Mar

-02

Jun-

02

Sep

-02

Dec

-02

Mar

-03

Jun-

03

Sep

-03

Dec

-03

Mar

-04

Jun-

04

Sep

-04

Dec

-04

Mar

-05

Jun-

05

Sep

-05

Dec

-05

Mar

-06

Jun-

06

Sep

-06

Dec

-06

Per

cent

age

chan

ge

Printing and Services to Printing

Publishing

Paper and paper productsSource: ABS

Global pulp prices continue to trend upGlobal pulp prices continue to trend up Prices now passed record levels in monetary termsPrices now passed record levels in monetary terms With Australia a price taker Australian printers may be With Australia a price taker Australian printers may be

faced with price increases over the next couple of yearsfaced with price increases over the next couple of years

Pulp Prices - NBSK

0

100

200

300

400

500

600

700

800

Dec

-00

Feb-

01

Apr

-01

Jun-

01

Aug

-01

Oct

-01

Dec

-01

Feb-

02

Apr

-02

Jun-

02

Aug

-02

Oct

-02

Dec

-02

Feb-

03

Apr

-03

Jun-

03

Aug

-03

Oct

-03

Dec

-03

Feb-

04

Apr

-04

Jun-

04

Aug

-04

Oct

-04

Dec

-04

Feb-

05

Apr

-05

Jun-

05

Aug

-05

Oct

-05

Dec

-05

Feb-

06

Apr

-06

Jun-

06

Aug

-06

Oct

-06

Dec

-06

Feb-

07

US

D/to

nne

Source: FOEX

The data applies to companies with 20 or more The data applies to companies with 20 or more employeesemployees

Extreme volatilityExtreme volatility Latest data shows improvements in pre-tax profitsLatest data shows improvements in pre-tax profits

Pre-tax Profits - Printing

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Dec

-01

Mar

-02

Jun

-02

Sep

-02

Dec

-02

Mar

-03

Jun

-03

Sep

-03

Dec

-03

Mar

-04

Jun

-04

Sep

-04

Dec

-04

Mar

-05

Jun

-05

Sep

-05

Dec

-05

Mar

-06

Jun

-06

Sep

-06

Dec

-06

Per

cen

tag

e ch

ang

e

Source: ABS

Fourth consecutive quarter fallFourth consecutive quarter fall Investment had been very robust until March 2006 quarterInvestment had been very robust until March 2006 quarter May see another decline next quarterMay see another decline next quarter

New Capital Expenditure - Printing

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Dec

-01

Mar

-02

Jun-

02

Sep

-02

Dec

-02

Mar

-03

Jun-

03

Sep

-03

Dec

-03

Mar

-04

Jun-

04

Sep

-04

Dec

-04

Mar

-05

Jun-

05

Sep

-05

Dec

-05

Mar

-06

Jun-

06

Sep

-06

Dec

-06

Per

cent

age

chan

ge

Source: ABS

Improvement reported during December 2006 quarterImprovement reported during December 2006 quarter But compared to same situation a year earlier industry is But compared to same situation a year earlier industry is

less confident about future business prospectsless confident about future business prospects

Business Expectations - Printing

0

5

10

15

20

25

30

35

40D

'01

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

Bal

ance

%

Source: Printing Industry Trends

Labour and capacity constraints increase in Labour and capacity constraints increase in significance significance

Main Barriers to Increased Production

0

20

40

60

80

100

120D

'01

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

Perc

ent

Capacity

Labour

Orders

Source: Printing Industry Trends

Welcome improvement in capacity utilisation ratesWelcome improvement in capacity utilisation rates For the first time in the past 5 years there has now been For the first time in the past 5 years there has now been

3 consecutive quarters of reported improvements3 consecutive quarters of reported improvements

Capacity Utilisation Index - Printing

55

60

65

70

75

80

85

90

95

Dec

Q01

Mar

Q02

JunQ

02

Sep

Q02

Dec

Q02

Mar

Q03

JunQ

03

Sep

tQ03

Dec

Q03

Mar

Q04

JunQ

04

Sep

tQ04

Dec

Q04

Mar

Q05

JunQ

05

Sep

tQ05

Dec

Q05

Mar

Q06

JunQ

06

Sep

Q06

Dec

Q06

Perc

ent

Source: Printing Industry Trends

Robust expectations have been replaced by weaker Robust expectations have been replaced by weaker intentionsintentions

Consistent with sentiments reflected in official dataConsistent with sentiments reflected in official data

Capital Expenditure Intentions - Printing

0

5

10

15

20

25

D'0

1

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

Bal

ance

%

Source: Printing Industry Trends

Second consecutive quarter riseSecond consecutive quarter rise Net balance lower than same period last yearNet balance lower than same period last year

Level of Production - Printing

-40

-30

-20

-10

0

10

20

30

40

50

D'0

1

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

M'0

7

Bal

ance

%

Actual

ExpectedSource: Printing Industry Trends

Similar pattern to productionSimilar pattern to production Forecast remains positiveForecast remains positive

Level of Sales

-40

-30

-20

-10

0

10

20

30

40

50

D'0

1

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

M'0

7

Bal

ance

%

Actual

ExpectedSource: Printing Industry Trends

Downward trend in selling prices continuesDownward trend in selling prices continues

Selling Prices - Printing

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20D

'01

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

M'0

7

Bal

ance

%

Actual

ExpectedSource: Printing Industry Trends

Improvements in profits likely outcome of cost Improvements in profits likely outcome of cost savingssavings

Net Profits - Printing

-50

-40

-30

-20

-10

0

10

20

30

40

D'0

1

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M'0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

M'0

7

Bal

ance

%

Actual

ExpectedSource: Printing Industry Trends

Cashflow management remains a problem with actual Cashflow management remains a problem with actual outcome exceeding expected outcomeoutcome exceeding expected outcome

Number of Outstanding Debtors - Printing

-5

0

5

10

15

20

25

30

D'0

1

M'0

2

J'02

S'02

D'0

2

M'0

3

J'03

S'03

D'0

3

M '0

4

J'04

S'04

D'0

4

M'0

5

J'05

S'05

D'0

5

M'0

6

J'06

S'06

D'0

6

M'0

7

Bal

ance

%

Actual

Expected

Source: Printing Industry Trends

Labour availability reported down for 10 Labour availability reported down for 10 consecutive quartersconsecutive quarters

Clear implications for labour costsClear implications for labour costs

Labour Availability - Printing

-30

-25

-20

-15

-10

-5

0

5

10

15

20

D'0

1

M'0

2

J'02

S'0

2

D'0

2

M'0

3

J'03

S'0

3

D'0

3

M'0

4

J'04

S'0

4

D'0

4

M'0

5

J'05

S'0

5

D'0

5

M'0

5

J'06

S'0

6

D'0

6

Bal

ance

%

Source: Printing Industry Trends

Unemployment rate at generational low poses problems Unemployment rate at generational low poses problems for printing businesses seeking skilled labourfor printing businesses seeking skilled labour

Strong correlation between falling rates of unemployment Strong correlation between falling rates of unemployment and worsening labour availabilityand worsening labour availability in recent periodin recent period

Labour Market

0

1

2

3

4

5

6

7

8

Per

cent

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Bal

ance

%

Unemployment rate (LHS)

Labour availability printing (RHS)

Source: Printing Industry Trends

Improvement in labour availability

Deterioration in labour availability

December 2006 quarter reported outcome is the highest December 2006 quarter reported outcome is the highest outcome in 11 years.outcome in 11 years.

Further increases expected during March 2007 quarterFurther increases expected during March 2007 quarter

Average Wages - Printing

0

5

10

15

20

25

30

35

40

45

50

D'0

1

M'0

2

J'02

S'0

2

D'0

2

M'0

3

J'03

S'0

3

D'0

3

M'0

4

J'04

S'0

4

D'0

4

M'0

5

J'05

S'0

5

D'0

5

M'0

6

J'06

S'0

6

D'0

6

M'0

7

Bal

ance

%

Actual

ExpectedSource: Printing Industry Trends

State by State State by State Comparison Outcomes Comparison Outcomes

Net balances used for sales, profits, selling prices and investment. Capacity utilisation – results capture proportion of respondents operating at capacity levels of 70 per cent or more

Source: Printing Industry Trends Report

Sales Profits Capacity Utilisation Selling Prices InvestmentNSW 12.8 -5.1 62.5% -18.0 2.9

VIC 21.1 15.8 79.0% -13.2 2.8QLD 40.0 26.7 93.3% 33.3 13.3SA 41.7 0 66.7% -16.7 33.3WA 33.3 -22.2 55.6% -11.1 22.2TAS 25.0 50.0 75.0% -12.5 0.0

State by State State by State Comparison Forecasts Comparison Forecasts

Sales Profits Selling Prices InvestmentNSW 10.5 0.0 -2.6 5.9VIC 10.5 2.6 2.6 11.1QLD 26.7 33.3 46.7 6.7SA 8.3 0 16.7 0

WA -33.3 -33.3 -11.1 -33.3TAS -12.5 -12.5 0.0 37.5

Source: Printing Industry Trends Report

Net balances used for sales, profits, selling prices and investment forecasts

SummarySummaryPrinting IndustryPrinting Industry

Printing industry once again expandingPrinting industry once again expanding Sales and pre-tax profits reported upSales and pre-tax profits reported up New capital expenditure fell for the 4New capital expenditure fell for the 4 thth consecutive consecutive

quarter but this should not be a concern due to the quarter but this should not be a concern due to the recent period of strong investmentsrecent period of strong investments

Improvements reported in orders and salesImprovements reported in orders and sales Idle capacity improved for 3Idle capacity improved for 3rdrd consecutive quarter consecutive quarter Selling prices continue to declineSelling prices continue to decline Cash-flow management remains an issueCash-flow management remains an issue Availability of skilled labour an ongoing concernAvailability of skilled labour an ongoing concern Wage outcomes at 11 year highWage outcomes at 11 year high

Will things get better?Will things get better?

Business climate likely to remain challengingBusiness climate likely to remain challenging

one due to the following factors.one due to the following factors.Environmental factors:Environmental factors: Extended Producer Responsibility for printing and writing Extended Producer Responsibility for printing and writing

papers/office paperspapers/office papers National Packaging Covenant – emphasis on reduced National Packaging Covenant – emphasis on reduced

packagingpackaging Junk Mail Campaigns – targeting direct mail itemsJunk Mail Campaigns – targeting direct mail items

Will things get better?Will things get better?

Globalisation:Globalisation: Offshore tendering Offshore tendering Free Trade AgreementsFree Trade Agreements

Technological:Technological: Developments in multi-mediaDevelopments in multi-media Cost of new technologyCost of new technology

Market conditions:Market conditions: Printed matter treated as a commodity goodPrinted matter treated as a commodity good Managing a hybrid business – manufacturing/servicesManaging a hybrid business – manufacturing/services NSW and to lesser extent Victorian economy less NSW and to lesser extent Victorian economy less

robust than other economies “missing out on robust than other economies “missing out on resources boom”resources boom”

Will things get better?Will things get better?

Recruitment of labour:Recruitment of labour: Difficulties in attracting young people to the industryDifficulties in attracting young people to the industry Skilled labour shortagesSkilled labour shortages Upward pressure on wagesUpward pressure on wagesSuccession planning:Succession planning: Printing Industries Printing Industries research shows that more than 38 research shows that more than 38 per cent of business owners surveyed are planning to per cent of business owners surveyed are planning to exit the industry within 5 years and almost 64 per cent exit the industry within 5 years and almost 64 per cent within the next 10 yearswithin the next 10 years Yet 31 per cent indicated that they had no business Yet 31 per cent indicated that they had no business succession plansuccession plan

Is there hope?Is there hope?

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