The past twelve months must surely qualify as the worst the printing industry has ever known. While individual print companies have suffered here and overseas, the extent of the recession can perhaps best be measured by looking at how suppliers to the industry have been hit. And almost everywhere profits have vanished, sales have plunged and survival plans have been implemented. Across the supply industry, thousands of jobs have been lost. What has made this unprecedented compared to previous recessions is that all parts of the world have hit the wall at the same time. Previously if North America was at the bottom of the cycle, then Europe might be slowing and Asia still in a healthy position. The impact of recession would be mitigated by economies around the world. Not this time.

On top of the cyclical effect is the very real evidence that a major structural change is underway. The old certainties that demand for print would continue to grow with gross national product is falling apart. Marketing budgets have online options, information products have digital alternatives, even magazines and books are proving vulnerable, while newspapers in the developed world are suffering a genuine crisis of confidence.

The highest profile victim of this has been Heidelberg, which had to seek emergency funding from German government funds in order to avoid what would have been a real disaster. Even now ceo Bernhard Schreier is not anticipating any real signs of growth until after the end of the financial year in March. At the six month mark sales had fallen more than 30% compared to 2008 at €1,013million (€1,461 million). This was made up of a 29% fall in press sales and a 43% fall in postpress revenues. Orders were down 48% in this division and 41.5% in presses, combining to give a 42% fall in orders taken in the first six months. It is impossible to sustain these kinds of fall without some impact.

But at least Heidelberg is still here, albeit severely wounded. Drent-Goebel went out of business as a press manufacturer , newspaper press manufacturer Wifag is looking for a partner, while German guillotine manufacturer Schneider Senator has been forced to reorganise to escape complete closure; Mabeg, whose feeders are used by a number of press manufacturers, has been under the control of administrators for six months and Nipson is now in administration. Most recently Océ seems sure to become part of Canon. Other consolidation must be on the cards, even if the big one – the combination of Heidelberg and Manroland – failed to go through.

Most hit have been capital equipment sales. All companies comment on the lack of orders, pointing the finger at credit restrictions implemented across the world, which stopped printers buying. Here the decline in sales and orders is of the magnitude that Heidelberg has suffered: KBA expects year end sales to be 25% lower than in 2008; Komori suffered a 60% decline in sales to North America, predicting that year end sales will be down 34%; Manroland has not announced figures for this year while 2008 was already 11% lower than 2007.

The collapse has not been as great in consumables. Kodak’s prepress solutions operations turned in sales 16% lower than in 2008 while in the third quarter digital plate sales were down 9%; Agfa’s graphics business was 8.8% lower in the same three month period and is running 14% below 2008 currently; Dainippon Ink & Chemicals, owner of Sun Chemicals, is 30% down on the previous year. But it is one of the few companies reporting that demand is gradually improving. It reckons that demand for inks bottomed in the first three months of the year, sales started to pick in Japan in April with Europe and North America following, at least in some sectors.


Understanding the causes
There are severe doubts that sales will ever recover to the level they once reached. KBA’s marketing director told shareholders that the overall market for printing presses had fallen from €9 billion in a normal year to €3.9 billion this year. All sectors were down; sheetfed at €2.6 billion (€5.2 billion); commercial web at € 220 million (€1.1 billion); newspapers at €400 million (€1.1billion) and flexo and gravure at €700 million down from €1.6 billion. Moreover, with the changes in the media market, together with the greater performance of current generation technology, the market will never return to the levels it enjoyed in 2005/6. The market capacity for presses will rise to 20% below their peak. Manroland’s ceo Gerd Finkbeiner agrees, expecting sales to never again reach their 2007 peak.

Where there will be growth is in digital presses, though this is not going to be a rapid recovery. Efi comments that the market for its inkjet products will remain tough in 2010, there will be recovery in 2011-2013 and growth beyond this. Canon is equally realistic despite saying that sales for its commercial digital presses were healthy with CV7000P and C1+ “enjoying strong popularity”. The Q3 report added: “Considerable time will likely be needed before the global economy realises a fully fledged turnaround and conditions are expected to slowly head toward a path of recovery from the end of the year through next year.”

Other Japanese companies were hit as badly, Ryobi blaming “subdued capital expenditure and yen appreciation” for the collapse in sales which were more than 50% down. Komori had the same story, claiming “the entire printing industry” has postponed capital expenditure. The result was a 30% decline in sales in Japan, 40% in Europe and 63% in the Americas. Sales in eastern and central Europe suffered more than in the developed economies with a shortage of credit to blame.

The decline in plate volumes hit both Kodak and Agfa in the same way, both reporting that factory usage was below optimum levels and that therefore relative costs rose. A drop in the price paid for aluminium has helped more recently. Kodak also noted that the recession had meant a lower usage of service personnel, an experience felt no doubt by companies across the industry.

The digital press suppliers have also recorded a shift in emphasis as end users have reverted to using mono rather than colour printing in order to save money. Colour production equipment sales for Xerox dropped 32% against a 22% decline in mono sales in its Q3 figures. The company blamed a hiatus ahead of the launch on new colour machines at Print 09, but its findings were not unrepresentative. Océ noted a shift away from colour for non-critical documents and HP reported that commercial hardware sales were down 42%. Colour pages produced on its Indigo presses were up 16%, perhaps absorbing some of the pages that would previously have been printed on litho presses. These trends were underlined by the report from Efi that sales to its two largest customers for Fiery products, Canon and Xerox, had dropped from a 30% share of the company’s turnover in 2008 to 24% this year, aided by a swing towards inkjet sales.

Time for action
The level of losses and unpromising outlook has provoked a spate of ‘emergency plans’ to trim millions of euros from overhead costs. The loss of jobs amounts to many, many thousands from r&d, production, sales, admin and supportive functions. Xerox reported that it would have 3,300 fewer staff by the end of the year than in Q3 2008, even though it had made at least one acquisition. This is from a total workforce that still reaches 54,000 globally. Kodak’s measures will trim 18% from its entire workforce, amounting to 4,500 fewer posts than when it implemented the cost reduction plan in 2008. It lists 1,225 fewer manufacturing jobs, 575 in r&d and 925 in admin roles. It also forced US employees to take one week of unpaid leave during the year. In Germany the annual summer shut down was far longer than normal for all press manufacturers.

Headcount at ancillaries supplier Baldwin was even more drastic with 24% of the staff made redundant as it struggled to minimise a net loss which reached €7.6 million. Presstek aimed to save $10 million through austerity measures as well as through renegotiation of loans. However, it is the press manufacturers where the job cuts have been most noticeable. In Heidelberg’s case the fear of thousands of unemployed workers helped make its case for government assistance, while the fear of job losses resulting from a merger with Manroland that helped scupper that deal. It is aiming to save €400 million. It has trimmed the workforce to 18,201 worldwide through cutting out 2,400 jobs since March 2008 and is aiming to take this to 4,000 jobs by March 2011. However, as Komori has found, some of the benefits are eaten away by lower selling prices and the changing value of the Japanese currency.

Manroland has shed a further 450 jobs to add to the 625 jobs cut at the start of the year. By next year it will have 7,000 staff, compared to 9,000 last year. KBA will have just 7,000 by the end of this year, around 1,000 less than at the start of 2009 and it intends to reach 6,500 by the middle of 2010. The measures will help save €80 million a year.

Such moves are not without controversy, and not only for those directly affected. As part of its cost-cutting programme, Kodak is shifting development work for Prinergy to Israel where its PODS digital press workflow team is based. This is the group working on the front ends for the Prosper machines and which will need to tie the press into the mature workflow product. As a consequence around 100 jobs are being lost in Vancouver, a move that has provoked concern among customers that future developments and support are at risk. It’s something that Kodak has been anxious to reassure customers about, but the mood of the moment prefers to see such adjustments in a negative light. Likewise Adobe is cutting 680 jobs (9% of its workforce) before the end of the year. Many are involved in development of Creative Suite products, where sales have been hit inline with the decline in advertising and marketing budgets. The cyclical nature of its business relies on new versions of software and users upgrading.

Other ways of reducing costs are to close operations which is the path taken by Mitsubishi Litho Presses when it closed its direct sales business in Europe, switching to a distributor-led sales channel. The business is absorbed into Mitsubishi Heavy Industries which says it has acted “in response to current market conditions, opted to establish a slimmer more solid business structure in order to secure profits firmly and manage its network dynamically”. It hopes that increased spares business and the launch of the V series presses will help rebuild sales, which is little consolation to printers that feel the effect of a decision taken in Japan.

Turning the corner
Others are looking forwards in different ways. The merger between Heidelberg and Manroland may be off (if there was a serious risk of it ever taking place), but others will take place. Shanghei Electric has become the largest shareholder in Goss (it already owns Akiyama) and others from China will be flexing their muscles. A company called Duoyuan produces a range of sheetfed offset presses and has recently floated its shares, albeit it at the lower end of its hopes. It plans to bring new presses out next year and has eyes on expansion beyond China. But that country is providing the first glimmer of light on the horizon as sales start to pick up. Komori says that while year on year sales are still down, it has noted a pick up in sales following the China Print exhibition in May. Likewise Heidelberg is seeing signs of light on the eastern horizon. It has also performed above expectations in the large format market where it introduced two machines at Drupa.

Screen is another where orders received are edging up. The company’s sales dropped 42% between the first six months of 2008 and the same period this year, prompting a reorganisation including factory shut downs and shedding 400 jobs, but it notes that orders received in the second three months of the year are running 50% above those for the first quarter. It does not specify whether the growth is from existing ctp products or new ventures into wide format or high-speed inkjet where the company is currently market leader.

Another seeing sparks of recovery is Fuji. However, its hopes for the future are running with the new four-page inkjet press, provisionally called the Jetpress 720. This is undergoing field trials in Japan has been highly acclaimed at demonstrations in the country. Kodak too is moving rapidly towards inkjet as the foundation for its future prosperity in the printing industry. “Industry and customer interest in our Stream inkjet technology which has been commercialised under the Kodak Prosper brand, continues to accelerate,” ceo Antonio de Perez explained. “Based on the growing number of letters of intent from customers, who are technology leaders across a broad spectrum of applications, we have an impressive order funnel for the Prosper press.” It is available for sales from the early part of 2010.

However, Prosper as an inkjet press is coming to a market that is not yet convinced of the technology, either for cost or application reasons. Infotrends notes that there are still relatively few high speed inkjet presses in operation in the world and that even these are finding it hard to attract decent volumes of work as the transformation to transpromo printing is proving slower than predicted. The book market is a more promising sector, though the potential customer base is limited.

An alternative path is one being considered by KBA. Instead of looking to expand within the printing industry, the company’s analysis is that the industry has peaked and that growth opportunities must lie outside the core market. Its sales position this year, when it hopes to break even, would have been worse without sales of special presses, for security applications and so on. Ceo Helge Hansen who took charge of the company earlier this year says: “The collapse of mergher talks between our two biggest German rivals has reinforced our belief that we must draw on our own resources in order to consolidate our traditional core business, press technology. Without neglecting this core activity, KBA will soon be engaging in a new field of operation with good potential for growth, earnings and employment. We believe that expanding our business scope is a wiser course of action than entering a merger in a shrinking market.” Options have included digital printing, but also solar panel production, water treatment and elsewhere.

Whatever path it chooses and its rivals choose, the recession has shown that nobody can afford to depend on old certainties any longer. But it is equally clear that the printing industry is not being wiped away by any digital transformation, that suppliers that take the appropriate action will have a future, even if it is one they could not have anticipated as the curtains came down on the last Drupa.