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The curse of over-capacity: lessons from the old Dart–news commentary by Andy McCourt

Thursday, 07 September 2006
By Print 21 Online Article

Yesterday morning, a very sad piece of news came in from the other side of the world. New Jarrold Printing, the Norwich firm with a heritage going back to 1770, will cease production within 10 days. This is no small printer – Jarrold has four heatset web presses (two Goss-Baker-Perkins G16s, a MAN 64pp Lithoman and a Komori 38s), and at one stage had another two KBA 64pp Compactas on order for a proposed new site, which presumably will now not proceed. (Rumour has it these two cancelled KBA presses are allocated to Australia!) Dreams of expansion and NJP becoming one of Europe’s most modern and efficient web offset printers are now shattered.

NJP was bought by management in 2004, from Jarrold & Sons–a family company with interests in publishing, retailing and philanthropy and very much a Norwich item. It immediately began searching for a new site away from the historic Whitefriars mill in the middle of the city, from which it had operated under Jarrold ownership for many years. That site is to become a hotel, and office development. Several new sites were explored, but the January 2007 vacation deadline loomed.

On August 1st NJP entered administration by PricewaterhouseCoopers (PwC), it was rumoured to have lost the Emap magazine business. The 300 staff took 20% pay cuts and some directors were made redundant. A buyer with keen interest – and a new site – was found and an extension of the lease to complete construction requested. Then the next bombshell hit – National Magazines (a Hearst company) – publishers of Cosmopolitan, Esquire, Men’s Health and House Beautiful – announced it was pulling its printing work from NJP. NatMags was NJP’s biggest customer.

PwC administrator Stephen Oldfield blamed the loss on ‘significant competition due to excess capacity in the industry.’

This, and two other significant UK developments should be carefully analysed by our local industry to see if we too are headed for, or are in, the catastrophic over-capacity trap. The second surprise was the Monday announcement by the BPIF (UK equivalent of the PIAA), that it would enter the Mergers and Acquisitions advisory business. For a peak industry body to do this indicates full acknowledgement of the consolidation and down-sizing of the number of players in the printing industry.

BPIF chief executive Michael Johnson said: “All too often companies merge or acquire for the wrong reason and with limited choice, which may result in them making wrong choices. Consolidation should strengthen an industry, but that is not always the case in print.”

This was echoed in statements from KBA’s UK md Christian Knapp who, citing a privately-funded study, predicted that by 2010 there will be 4,000 fewer UK printers (8,000 as compared to 12,000 in 2006), 85,000 fewer employees (100,000 down from 185,000 in 2006) but turnover will rise from AUD$37 billion to $43 billion.

Of course, in 2000, the PIAA’s original Print21 Action Agenda identified the need for consolidation here in Australia, with a potential halving of the number of print operations and there has been a frisson of action in this regard. But have we gone far enough and are there lessons to be learnt from what is happening in the UK industry – such as the closure of the once great Jarrold Printing?

MY CALL: It’s a print buyer’s market. The immutable laws of supply-demand put printing very much in an over-supply and declining demand situation. I visited Jarrolds in the 1990s and a more dedicated, competent web offset printer would be hard to find. But even then I was surprised that the presses were still rolling on a prime piece of real estate next to the heart of Norwich, abutting the delightful river Wensum. The Jarrold family owns the site and it was only a matter of time before they would want a better return.

It could be argued the MBO team dilly-dallied on moving out but the cruncher was the loss of its biggest customer. That the UK market can absorb the closure of a major web offset printer and still find capacity for the contracts shows just how tight the market has become.

There are four strong winds of change affecting print capacity in developed markets such as Australia and New Zealand:

  • Automation – presses (web and sheetfed) that print faster, better, with smaller crews and with the ability to take shorter runs or ‘ganged up’ work. They can not stand idle and have to suck in capacity from other presses; or replace them.
  • Offshore competition – the overcapacity situation is exacerbated by increased capacity in places like China, India and Thailand. Publishers and print brokers can ‘play the field’ both locally and overseas.
  • Print displacement – more printers chasing a diminishing media sector and yet with bigger, faster presses can only result in margin-erosion, cut throat competition and then consolidations.
  • Digital on-demand printing – this one has yet to really bite into high-volume sheetfed and web printing but make no mistake, it will.

There are probably around 70-80 heatset web presses in Australia and New Zealand, plus a handful of hybrid heatset/coldest lines put in by Newspapers wanting to take on commercial work. Most of these are fairly modern, some yet to be installed.

With most heatset work divorced from its publishing sources, unlike newspapers, publishers buy print on the open market. It’s mostly ‘Cats ‘n Mags’ and catalogue/magazine contracts have a habit of shifting around. Printers operating in this space are at the mercy of fickle print buyers and cut-throat competition. It’s a tough place to be the constant mantra of ‘get costs down’ must be repeated.

Those Australian and New Zealand operations profitably succeeding in heatset web offset have my utmost admiration.

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