2015 drupa Global Trends Report: Executive Summary

Welcome to the executive summary of the second drupa Global trends report, tracking key economic and market developments in the global print industry over the period leading to drupa 2016 and beyond. This is based on a survey conducted in October 2014 in which over 1100 participants took part globally with all regions well represented. Our thanks must go to them all for their time.

810 printers participated in October 2014 and whilst a majority were from Europe (513), the rest of the world was well represented in all regions (297). Last year the questions we asked of suppliers were limited to general economic/financial topics. This year we issued a full separate supplier survey, sharing some questions with the printers, but also asking other more specific questions relevant to them. Given the relatively smaller number of suppliers, we were pleased to get responses from 304 of which 194 were from Europe, but again all the other regions were well represented.

This 2nd Global Trends report is complemented by drupa’s Global Insights reports, the first of which was published in October 2014 – The Impact of the Internet on Print – The Digital Flood (available from the drupa website). A second Global Insights report will be on the technologies and applications that can create growth in print and will be published this Autumn. Messe Düsseldorf, in its role as drupa organizer, must thank our two partners for conducting and authoring these two report series – Printfuture (UK) and Wissler & Partner (Switzerland).

We hope you find the resulting report enlightening. For those who want to examine the results more carefully, the data sets will be made available in English via the drupa website for members of the drupa expert panel. We would be pleased to receive any feedback, so send us an email to [email protected].

Positive economic assessments by printers for both this year and next

We started the surveys for both printers and suppliers this year by asking two broad questions on how positively participants considered the current economic condition of their company and what they think are the prospects for the coming 12 months. We have described these as the drupa Barometers of economic confidence. 34 percent of the global panel of printers described their current condition in 2014 as good and just 13 percent said their condition was poor – a positive net balance of 21 percent.

However what was more surprising was how positive the printer panel was for prospects in the next 12 months. Globally 48 percent expected their economic position to improve and only seven percent expected it to decline – a positive net balance of 41 percent. This optimism was shared widely across most regions.

In terms of end markets, those serving Packaging and Functional markets are doing better than those serving Commercial and Publishing markets and this is true in virtually all regions.

A similar positive story from suppliers

Amongst suppliers, 36 percent reported their companies in good current condition and just 17 percent reported a poor condition – a positive net balance of 19 percent. Like the printers, they were optimistic for the next 12 months with 51 percent globally expecting their companies’ economic condition to improve and just 8 percent expecting it to decline.

It has to be said that such general optimism is not entirely supported by the global economic summary or results from the following more detailed questions on current trends in financial performance.

Printer revenues rise

The good news is that revenues globally have improved this year for 39 percent of the printer panel compared with just 22 percent who have seen revenues decline. But that positive net balance of 17 percent is significantly lower than the 27 percent reported last year. North America was the only region that saw an increase in the size of the positive net balance in revenue growth, from 51 percent last year to 60 percent this year.

Prices fall further

Despite increasing revenues, getting price increases remains really difficult for printers. Just 15 percent of the global printer panel reported achieving price increases in the last year and 38 percent stated that prices have declined. No region reported an improved picture year on year, in sharp contrast to last year, where four regions were able to report a net balance of price increases. In some cases the decline was dramatic e.g. in Asia where a net positive balance of 19 percent last year was turned into a net negative balance of -21 percent.

Utilization grows at a slower rate It was a similar story on printer utilization with 44 percent of the global audience able to report improving utilization this year (52 percent last year) and 20 percent reporting declining utilization (17 percent last year). Regionally North America and the Middle East reported broadly similar results to last year and Australia even reported better conditions (56 percent improved utilization compared with 41 percent last year). But South & Central America and Asia reported worsening conditions.

Margins still declining

Turning to the resulting overall margins or profit levels, it is not surprising that just 16 percent of the global printer panel were able to report that they had grown margins over the last year and 43 percent said that margins had declined. Only those from North America and the Middle East were able to report a net improvement. All other regions slipped backwards, some quite badly e.g. S/C America down from 19 percent last year to just 10 percent this year, Africa 32 percent last year down to 22 percent this year and Asia down from 28 percent last year to 15 percent this year.

Printer revenues rise with greater utilization despite price and margin falls

It is clear that the financial health of printers worldwide is dependent on ever-increasing utilization to counteract a universal drop in prices and margins. Strikingly in every case all measures have slipped backwards in 2014, sometimes by just a little and sometimes by a lot, except paper prices where the reduction in price increases has slowed (a price increase is treated as negative in this measure).

Europe and Australia/Oceania show great weakness reflecting the fragile economic performance in those regions while the softening of economic prospects for Asia and South/Central America are reflected in poor overall measures.

Supplier revenues and margins are a mixed picture

The regional pattern for supplier revenues is very mixed with an overall net positive balance. Those reporting revenues up are North America (+21 percent) and Asia (+11 percent), both S/C America and Africa are neutral at 0 percent and there is bad news for the Middle East (-5 percent), Europe (-4 percent) and Australia/Oceania (-14 percent).

All regions had negative net balances of respondents reporting price falls, ranging from -6 percent in Africa to -30 percent in Europe. When it comes to margins we are again in negative territory, ranging from -5 percent net balance in the Middle East to a staggering -44 percent in Europe.

Big regional variations in financial conditions

There is an overall worsening of financial conditions year-on-year globally, but more striking are the major variations between the regions. It is notable that conditions on the whole appear significantly tougher for suppliers.

It is important to note that the financial measures are more pessimistic amongst suppliers compared with printers in every region. Are printers closer to the end markets and beginning to foresee a more positive future or are the suppliers making more realistic assessments? Future drupa Trends reports will tell us.

Printer operational performance trends

Turning to operational matters for conventional (non-digital) print, it is somewhat surprising to report that whilst the trend to shorter runs continues unabated, lead times now appear to have stabilized and the number of conventional jobs being handled appears to be declining. These trends were all global in nature and across all markets.

There are significant swings in the volume of print analyzed by print technology used over the last 12 months with high volume web offset equipment in modest decline, sheetfed offset marginally positive and digital cutsheet color very positive globally. The growth trend in flexo for packaging continues and there is also increased interest in hybrid technologies, particularly outside Europe.

Whilst the rapid growth of digital print shows no sign of slowing, it is important to note that for the majority it represents only a modest proportion of turnover – for most printers the vast bulk of cash is still being generated by conventional print.

Many industry commentators actively encourage printers to diversify and develop non-print turnover. Although this is happening slowly, the figures are virtually unchanged from last year, with just 27 percent globally having more than 10 percent of non-print turnover.

The latest survey results show that the impact of web-to-print varies significantly between markets. It is commonplace in commercial and functional print, but they are the exceptions. Furthermore few had a significant proportion of turnover coming in this way - just 17 percent of such installations globally were handling more than 25 percent of company turnover.

Printer and supplier investment plans

Comparing the results from last year’s survey with actual expenditure we can see that last year’s expectations were not fully met across the globe, but there was nevertheless a positive trend to invest more. Interestingly predictions for next year, whilst positive, are more restrained.

Turning to investment in print technologies, one of the more striking results from last year’s survey was the prediction that whilst digital cutsheet color presses were the No. 1 choice for all printers, sheetfed offset was second choice for all but packaging printers (who chose flexo). The pattern is similar this year, though sheetfed offset is marginally more popular than digital cutsheet color in the rest of the world.

Despite or perhaps because of the gloomy performance figures, suppliers remain determined to invest and whilst the net balance of suppliers who invested more in 2014 than 2013 was small, they predict spending more next year.

Strategic issues for printers and suppliers

The pace of consolidation of the industry continues with 31 percent of printer respondents reporting they have considered a merger, acquisition or sale of the company in the last year (up three percent from last year). Of those, 46 percent have completed a deal in the last year or expect to do so in the next year. In the current economic climate where organic revenue growth with reasonable margins is hard to achieve, strategic partnerships and Merger & Acquisition activity is likely to increase. This will allow printers to strengthen their core business activities quickly as well as diversifying into new service areas at relatively low risk.

Competition and lack of sales demand were the key constraints of growth, for both printers and suppliers. Given the soft market conditions and yet the need for growth, it was clear that new product launches and developing new sales channels were the top priorities for suppliers.

Market-specific trends for printers

Commercial market – growing diversification

We commented last year that with many printers facing severe decline in demand for their core print product, it is logical for them to diversify into fresh added-value products and services.

There is a clear if modest increase in the percentage of companies offering additional services compared with last year. However what is striking is how North America is leading the way with ever-higher participation in such services, whilst some other regions lag well behind e.g. Middle East & Central/South America, probably reflecting regional variations in the use of Internet services.

Publishing market – slow but steady impact of digital media

Turning to services provided for publishers, with the notable exception of prepress services (which is almost universal), there is a wide range of adoption of additional services between regions that we suspect is a reflection of a variation in local publishing supply chains.

The slow but steady impact of digital media on publishing print is clear when we examine the results of three related questions on increasing use of variable content, personalization, versioning and the increase in online only digital editions. None of these trends is yet decisive but the trend is clear with small increases in all parameters year-on-year.

Packaging market – growing demand for added value SKU’s

Demand for digitally printed packaging has remained modest with only 23 percent of packaging printers worldwide actively selling digital print and few of those reported strong demand. On a broader front it is clear however that added value packaging elements are becoming more widespread with variable content, interactive print, personalization and versioning all relatively commonplace.

As demand for core print products remains strong in most sectors and regions, it is not surprising to see less diversification amongst packaging printers, the exception being widespread adoption of design services (64 percent globally) and stock storage and fulfilment (48 percent globally).

Functional print markets – a positive story to end

As in the packaging market, end market demand is creating positive conditions for growth for most companies in functional markets eg in textiles and home decor. Different end market needs demand different print technologies with screen and pad dominating the ceramics sector and digital inkjet doing the same in textiles and home décor but with digital electrophotographic playing an important secondary role in many markets.

In conclusion

Despite challenging economic conditions in many parts of the world, the printers and suppliers of the drupa expert panel are very positive for their own companies’ economic prospects. This is despite the adverse trends in many of the detailed performance measures examined in this report.

That optimism is confirmed by the significant capital investment plans that both printers and suppliers reported for 2015. They clearly understand that it is only by a positive development strategy that they can ensure their individual companies and the print industry in general will remain relevant and competitive in a multimedia communications world.