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Look here – 2008 is crystal clear: Print 21 magazine article

Wednesday, 05 March 2008
By Print 21 Online Article

Resolutions? Pah! You can keep them (or not, as the case may be …). But when it comes to predictions – now that’s what everybody wants, particularly if they’re accurate ones. A master in the art of fortune telling, Derek Fretwell gazes into his crystal ball to offer a few insights into 2008.

In the days when I was a gainfully employed executive it was normally in the last quarter of the year that I would submit, usually to foreign owners, my carefully prepared New Zealand business plan and budget for the following year.

Consumable products, plates, ink and the like follow the industry. A busy industry uses more, a quiet one less. Calculate a variation for sales effectiveness, product acceptability and so on and you have a market share. The accountants can do margins, FX, staffing and the like and put it in proper form for the pointy heads.

Selling plant and equipment to printers, however, is a much more demanding business to predict, and as the dollars involved can be considerable, so are both the upside and downside budget risks. It is not an exact science; I recall one spectacular year when I included $16 million for a web press which did not happen. You have to sell a lot of spray powder to make up sixteen mill so my subsequent board meeting was a very bracing affair.

Also, after some years at senior levels, I discovered that it did not really matter that much what you included in the budget. The document you sent overseas and the ‘approved as agreed’ one that came back were very different and it was quite pointless and very career-limiting to demur.

You could work for weeks, carefully preparing information to be overruled or largely ignored, when the time could have been better spent hunting trout. To avoid this and still complete a budget in time, I used to maintain in my office safe a large crystal ball full of brilliant cyan liquid ink. When asked for my considered views on the next year, I would roll it round on my desk a few times and have a look. Most times it would come up with something sensible, but as I said, it didn’t really matter.

It may surprise you, as it will surprise some former employers, that such scientific methods were used to plan large portions of the New Zealand supply business. But forecasting is witchcraft and magic, and when it comes to New Zealand printers I reckon my crystal ball was better than whatever the pointy heads used.

It (the crystal ball) fell out of my fishing bag the other day and before I could stop it the following predictions for New Zealand 2008 flashed before my eyes. Feeling courageous I thought I would share them with my devoted readers. I’ll review them in December and we can see how the crystal ball performed.

The print market
It’s election year over here so if we follow our Australian cousins we will dump the socialists and get a new lot. Problem is, over here, we no longer elect governments. All we get to do is choose parties and then they decide who will be the government. So don’t be too surprised if the lefties use your money to hang on to the throne and look out for the Maori party’s new, taxpayer-funded, private jet!

Elections are always good for our signage brethren though (whoops, what ‘brethren’?) so the crystal predicts a cracking year for those involved in the signs and display market. The crystal tells me that equipment vendors to this segment are also looking at a beauty.

Commercial sheetfed
Commercial sheetfed, as usual, is the most challenging to forecast. Some get richer, some apparently don’t and there does not seem to be a consistent formula. The news from overseas and indeed locally is of continued pressure, business closures and consolidation coupled with expansion investment and profits by others. Gazing into my ball all I could see was a rather odd chap looking back!

Meanwhile, the Palace of Geon in East Tamaki nears completion and hats off to the staff who seemingly have maintained production in the meantime. I guess it’s possible that improved efficiencies from the new plant will increase margins on existing work. Whether those efficiencies will satisfy investors haunted by worldwide interest rate hikes and the international credit squeeze remains to be seen.

According to the crystal ball (and my printer buddy) taking business from the smaller independent printers of this land will be nigh on impossible. Their customer relationships are usually strong and long term. They also tend to be based on things like kids football teams and wives clubs, something unusual in Australia, quite usual here and very difficult for super printers to emulate. So if increased New Zealand business is needed by Geon there really is only one place to get it – its rival opposition. In a battle for market share between those two heavyweights, the losers will be the vendors and the winners the print purchasers, so let’s hope not.

There will be a growth in demand for sheetfed printing most of which will be met by expansion of digital offerings and this year will see digital printers shift from trying to emulate offset to ignoring it. Offset printers will find themselves competing with digital rather than the other way around as the FXs, Konica Minoltas and Canons really start to put some systems in the field.

The crystal says that despite being one of the smaller segments of the greater industry, a sheetfed job will again take the Pride in Print Supreme award. This will further distance most of the industry from the value of entry.

Newspapers and magazines
Increasing pressure from alternative advertising mediums will see a trend to lower rates with higher paging or ad percentages to maintain revenues. (For an example of the effect just watch TV). Newspapers with lower circulation but higher paging, ad content and colour is good news for every vendor except the paper supplier.

According to my crystal ball the heatset market will continue its growth of recent years after what has been a substantial period of ownership consolidation. Most interest will be generated by hybrid coldset sites using the quality advantages of CTP to expand their market opportunity. Some of these will use distribution facilities to take the shopper business away from more traditional heatset suppliers.

Although heatset printers are not threatened directly by digital printers the magazine publishers will find online magazine offerings complicating life, the universe, and all that, and the answer may not be 42.

Gazing into the crystal, I recall a recent quote from one senior publishing exec who said to me: "We’d love to get out of paper but can’t figure out how". That’s a statement to cause heart palpitations in every supplier large or small. The newspaper/web segment is the largest user of printing consumables so if they ever "figure out how" I won’t be the only ex-vendor scratching a living from the pen.

That internet, damn!

Thank goodness (again) for packaging
Giving the crystal ball a quick flick reminds me that the second biggest segment of the graphic communications industry is in fact packaging. Some sections of packaging continue growth at levels exceeding that of digital sheetfed, or more than 20 percent plus. Anything emerging from the technology side of things only seems to make things better; digital workflow and proofing improve production statistics and CTP holds out the possibility of expanded ink sets in both flexo and offset environments.

Let us not forget our rural roots; there is a worldwide shortage of arable land and water and we’ve got heaps. We may be a bit distant but we are very efficient and getting better and better at value-add, like packaging. As an example, anything dairy needs some kind of container. If the massive Fonterra performance continues, the whole New Zealand population will soon be churning out yoghurt boxes and cheese wrappers and happily getting as rich as our farmers in doing so.

My crystal ball says to mention our label printers. Not just our wine labels but it sees some interesting stuff coming up in offset printed plastics from a place not so far far away.

With some Trans-Tasman consolidation and realignment in corrugated, who knows what the future may bring? If such a consolidation bought an increase in prices then many would take some heart from that (whoops again). Like I said, anything dairy needs some kind of container.

Vendors? Who?
Print should have a good year and you would expect this to reflect in vendors’ margins. I suspect that the current level of the USD is helping some. Not so good to be importing from Japan or Europe though as the €/Y/USD cross currently favors the nuclear protectors of the free world.

Paper merchants will sell more but, oh dear, those margins.
The dealer model will continue to be attractive to many one sector suppliers and more Australasian dealerships will result as the Aussies assure principals that it’s really just one market.

About now I’d be counting the number of CTP systems that should be replaced. Note I said should. Film imagers required regular updates and replacement every few years. CTP imagers, it seems, have a much longer life span. Being on the downside of the technology curve, there is simply less technological pressure to update. There are still some opportunities in newspapers/coldset though.

Overall I’d be pretty bullish if I was offering up a 2008 budget and business plan on the New Zealand printing industry, and my crystal ball agrees.

No comment about the Australian market? I’ve only got the one crystal ball and that’s not quite enough balls for that one.

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