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What to expect in 2009: a word from the publisher

Wednesday, 10 December 2008
By Print 21 Online Article

Planning is the bedrock of business, says Print 21 publisher, Patrick Howard, who speculates on what the future holds for the printing industry.

Without a plan, a direction and a destination, a business is at the mercy of the commercial elements. The old adage is … if you fail to plan, you plan to fail. But how do you plan in the current circumstances, when the financial ground is continuously shifting, when you don’t know how deep or how long this economic crisis is going to be? All over the world the mighty giants of finance, banks and investment houses are shaking, some crashing to the ground, others withdrawing lines of credit with scarcely a thought for anyone but themselves. In this rush to the lifeboats there is little empathy for the problems of a small- to mid-size printing business trying to chart a course for survival.

In talking with industry notables in recent weeks one fact was reinforced time and again… the future is unknown. While many of us have our own views on the likely scenario over the next year, most will admit to flying blind. This was brought home to me by Albrecht Bolza-Schünemann, president of KBA, the German press manufacturer, when announcing job cuts and an eventual loss for the company over the calendar year. In his report on the third quarter he said that he was unable to speculate what even the near future held for the multi-million dollar manufacturer: “In view of the current turmoil in the international business environment, and unforeseeable developments in financial markets, any attempt to predict KBA’s path beyond 2008 entails too many unknown factors to be of any merit,” he said. When the leader of a huge global manufacturer admits that he cannot forecast two or three months out, the rest of us may be excused if we offer our prognostications with many caveats, hedgings and a good deal of humility.

Now hear this

The latter is just what is missing from most media and economic commentators. It is a curious phenomenon that the more uncertain the times the more confident the opinions from the army of professional forecasters.
Does it not strike you as strange that with scarcely a change in tone or a modulation of emphasis, these highly paid consultants and advisors have gone from encouraging you to leverage your superannuation and your home in order to get the highest rate of return from the longest-ever financial boom, to bald-faced warnings on the evils of having too much debt and predictions of a long, bitter recession?

Do they have any idea what they are talking about? The financial crisis may not have come out of the blue, but the few voices that warned it might happen were crying in the wilderness. It is fair to say that no one saw the full extent of the crash nor the speed with which it grew. Governments and banks, Prime Ministers and financiers are all grappling with the unknown future, hectored and advised by the same bunch of professional claques that boosted the pernicious investment practices that have led us here.

Credit, governments and banks
The spectacle of governments throwing money at the banks in the hope that it may encourage them to start lending again is enough to test the strongest faith. Banks have the begging bowls out so they can reassure investors that their money is safe. Nowhere in the clamour do we hear them advertising that they are open for the business of lending to businesses, that lines of credit can be assured and that they will assist in meeting cash flow requirements. Surely if there is any point in the government splurging money into the financial system, lowering interest rates and guaranteeing deposits it is in mandating that normal commercial practices continue as a priority.

This is not happening. I hear reports of banks withdrawing long-established lines of credit from printers. This is more serious than printers’ difficulty in securing finance for ongoing capital investment. While putting off buying a new machine for a few months may be a problem, not been able to access sufficient credit to even out the peaks and troughs of cash flow can send a creditworthy business broke.

So how bad will it get?
Is it reasonable to expect that Australia will follow the rich nations of the world into a recession in 2009? New Zealand is already in recession. Our downturn may not be as deep and severe as elsewhere, but we are unlikely to survive unscathed. While most printers are finishing off the traditionally busy pre-Christmas period of the year with solid production schedules, the straws in the wind point to a weakening economy. David Jones, the bellwether for the cashed-up consumer, is expecting its worst Christmas trading period in years. Sales fell by 6 percent in the three months to October.

So what does a looming recession mean for the printing industry? Printing has always been considered a good ‘hard times’ industry. It lives on lots of small jobs, mainly cash work even in the packaging sector. These innumerable jobs are unlikely to dry up completely. People still need to print as an essential to conducting business. It is not a huge line item in most budgets and unlikely to be the focus of searching cost cutting.

Interest rates are heading south with the current cash rate at 4.25 percent and likely to ease even further. Most small- to medium-sized printing companies are not heavily in debt despite the high-rate of capital investment in recent years. Some of the large private equity backed companies have their own concerns in this matter, but their invested money is likely to be locked in for a set period. Employment in the industry has tightened under its own dynamics as printers have struggled to find skilled workers for years. Intense competition has produced a printing industry that is lean and cost-conscious. With this in mind, I believe most printing companies are in a position to survive this recession, provided it does not go on for too long. So far at least, I have heard no reports of unplanned closures.

PacPrint 09 … a hard times show
The slowing growth rate and the precipitous fall in the currency has dealt the supply side a double whammy. At a time when printers with any access to credit would be expected to pick up equipment bargains, the one-third fall in the value of the dollar has cruelled the opportunity. Any supplier that depends solely on capital equipment sales will find the going very tough over the next year. A strong consumables business is the essential life jacket to keeping afloat. The paper merchants have pushed through serious price hikes in recent months with more to come, as a result of the currency changes.

Paradoxically the digital sector is looking to the recession as an opportunity to advance the technology further into the market. Their reasoning is that printers who are not able to buy expensive offset hardware will plump instead for digital, especially the so-called digital ‘lite’ sector at around the 70 pages per minute. At around the $60K mark for a machine they may be right. But they also face the problem of currency and financing.

All of which reinforces the fact that next year’s PacPrint in Melbourne during May will not be the usual display of graphic arts triumphalism. Already at least one supplier has sounded others on the possibility of cancelling or postponing the show. The suggestion was rebuffed, even though it found quite a few sympathetic ears. The confidence-shattering impact of a postponement of PacPrint would be out of all proportion to the savings of already committed show expenses. While no one expects too many equipment deals to be signed at the show, it is in the industry’s long-term interests to stay abreast of the latest in technology and be aware of what opportunities are available for when times turn better. What PacPrint cannot do is proceed as if the real world outside its doors is not bearing the burden of recession.

So what’s the plan?

To get back to addressing the initial conundrum of how to plan when the only thing that is certain is uncertainty, perhaps it is best to go back to first principles. Initially it is important to batten down the hatches as the storm warnings accumulate. Don’t wait for the impact before you extract costs from your business. Downsizing may be appropriate—many companies have already cut their workforce—but be careful you don’t throw your best assets overboard. Good people are hard to find and on some level we’re all in this together. Short time working weeks may be a better option than losing good employees.

Don’t try to absorb the increases in costs that are coming your way. You cannot afford not to pass on to your customer paper price rises of 10 to 15 percent. Make sure you know the real costs of your production. Do not subsidise your customer. Forget unprofitable market share. Winning work without margin is fool’s gold. This may be a good time to put in place any production efficiencies you are considering, perhaps even automation, especially in costing and workflow. You’ll get lots of help from your supplier.

Tighten up on your credit control. It should be a mainstay of your business practices anyway but now you cannot afford to let payments stretch out. Everyone will be trying to conserve cash so you have to make sure you don’t act as a banker for your customers. Schedule you own payments and stay in touch with your suppliers. If you miss a deadline phone them up, don’t wait for them to chase you. Confidence and reputation is your capital too.

Once you have your business at the right size and working to the best formula, there is not much else you can do. Remember that what you are trying to protect is your enterprise model. Too much tinkering to save half a cent will be as damaging as ignoring the warning signs. Too much hungry pricing will drain your reserves. And think twice before cancelling the Christmas party.

If you are confident you’ve done what is in your power to do, that you have addressed those factors that are amenable to change, then you can only watch to see what unfolds. It may be a passing squall that will blow over by this time next year. It may be the start of a global depression, a structural alteration that will last for years. If it’s the former, you are in the best position to survive and bounce back. As for the latter, it is unlikely anyone’s business model will survive that scenario intact. But that’s a different story.

And on that cheery note and on behalf of the entire team here at Print21, I wish you a Merry Christmas and a Prosperous New Year. Take some time off, relax and recharge. See you in the New Year.

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