trends and threats in publication printing in europe

September 29, 2009Trends and Threats in Publication Printing in Europe2

Trends and Threats in Publication Printing in Europe

ERA Annual MeetingSeptember 29, 2009

Markku Korpivaara, PresidentPöyry Forest Industry Consulting GmbH


Current Operating Environment

Macroeconomic risks and vulnerabilities:

• A lot of uncertainties in global economy• Rising unemployment, further contractions in

output• Higher than expected increases in oil and

other commodity prices• Public sector debts unbearably high; soaring

tax rates• Rising protectionism, contraction of

international trade• Economic recovery: V-, U-, W- or L-shape?



European printing industry –key challenges and risks:

• Deceleration of the publication printing demand

• Regional oversupply and fragmented industry structure in Western Europe

• Increasing role of Eastern Europe

• Low earnings

• Lack of transparency in pricing

• Smaller print runs and segmentation of the audiences

• Change in media mix Shift to electronic media



European pulp and paper industry –key challenges and risks:

• Maturing graphic paper markets; competition from alternative media leading to a permanent downward shift in graphic paper demand

• Exchange rates – weak dollar and weakening cost competitiveness of European industry

• RES targets; bio-fuels competition for wood raw material

• Growing sustainability and social responsibility demands

• Regional over-supply and fragmented industry structure


Demand Development for Publication Papers in Europe

0

2

4

6

8

10

12

14

2000 2002 2004 2006 2008 2010e

SC paperCoated mechanical paper

Million tons

Changing demand structure also reducing the consumption growth

Inserts, flyers,

supplements24 %

Catalogues16 %

Magazines50 %

Books2 %

Other8 %

End use structure 2008

Main rotogravure end uses

CAGR 2000-20082.3%1.9%


Key End Use Drivers in Europe

Inserts/flyers ++ Affordable, fast and well targeted advertising method+ Increasing purchasing power especially in Eastern Europe- Declining newspaper circulations limiting the growth of inserts

Newspapers

End use

-

- Brand advertising and classified ads in newspapers decreasing- Declining pagination of newspapers- Declining circulations of paid-for daily newspapers, partly due to increasing adoption

of online news services+ Strong readership culture still supporting printed newspaper

Key drivers

Catalogues -- Declining mail order market, mainly explained by ongoing urbanization and

changing consumer lifestyles - Growth of web catalogues and online retailing+ Slow growth continues in specialized catalogues and trading company catalogues

Magazines -/+- Changing reading habits and leisure activities- Declining advertising and circulations in low-end and general-interest magazines+ Growing popularity of special-interest magazines+ Growing magazine publishing industry in Eastern Europe

Direct mail ++ Well targeted and personalized advertising channel High response rates and fast

response times. Future prospects expected to remain good.+ Increasing opportunities for personification due to improving databases- Online marketing growing as a competing channel as digital identification improves

Commercial printing -

- Cost cutting measures influencing advertising/promotion budgets, favoring digital applications at expense of print High sensitivity for structural changes

- Development of online platforms Increasingly effective and transparent distribution method for promotional material

+ General simplicity of paper-based promotional materials


Different Media on the Same MarketFrom a historical point of view, electronic media has not threatened the growth of paper media – on the contrary, paper industry has profited from the development.

Newsprint0

10

20

30

40

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 20050

10

20

30

40

Printing & writing papers

Expansion of Internet/WWW

PC

Minicomputer

BroadcastingCinemaTV

Laser printerCD-ROM

Mainframecomputer

ColourTV

Cable TVVideoSatellite

TV

Growth of mobile media

Social media

Paper consumption, million t/a

Newsprint


Media Is Undergoing a Transformation

• Volatility in advertising expenditure

• Increasing role of electronic media and e-commerce

• Changing business models

• Growing impact of emerging markets

• Power of the user grows


Latest Advertising Trends

• The longer the recession continues, the more it will have impact on paper market demand structures, most of them reducing the consumption growth. Part of the consumption will never come back.

• New advertising/promotion campaigns are interactive web based tools supported by print media, when appropriate

– product clubs established and run by brand owners

– user driven communities

– social media portals e.g. Facebook

– role of mobile marketing with improved segmentation, but blurring the line to privacy

– and the role of print based media is supportive and thus declining.


ConvergenceFrontiers fall. The rules of competition change. Who, in the end, decides?

Printer Transportation

Publisher

ADVERTISING

Network operators

Content

Hardware suppliers

Fibre sourcing Paper producerPulp producer

Delivery

CONSUMER

Terminal devices

manufacturers

Electronic media services

providers

Disposal

Graphic communications value chain – fibre based

Electronic communications value chain – network/device based

DECISION maker CHOICE maker


Is This the Future of Printed Media?

Case Andiamo - Crowd sourcing to design shoesTarget group: teenagers & young adultsMedia coverage: Internet, Radio, TV, Stores – Only one magazine

How can the printed media make the most of other medias to get Y-generation’s attention?Source: Kesko


Future of Printed Media

Case Cosmopolitan Target group: teenagers & young adults

• Before – Only magazine

• Present – Magazine, Internet (www.cosmopolitan.com, Facebook etc.), other medias

• Future – ?

Print is not dead, but will have to sharewith digital and will be expensive

SourceCosmopolitan


Industry Restructuring Needs in Western EuropeMany of the paper industry business areas are considered moderately concentrated

0 0.05 0.1 0.15 0.2 0.25

Newsprint

Magazine paper

Uncoatedmechanicals

Coatedmechanicals

Uncoatedwoodfrees

Coatedwoodfrees

Herfindahl indexNote: the Sappi – M-real asset deal is not considered here.

FragmentedModerately

concentrated Concentrated

• Magazine paper industry still relatively fragmented

• In uncoated mechanical papers, the top three producers account for 2/3 of the total capacity

• Further acquisitions and mergers are anticipated

• Shutdowns are expected in coated mechanicals due to overcapacity situation


Publication Paper ProfitabilityOn current cost and price level the demand decrease of 20% will create even more pressure on producers.

*) Operating rate 100% Capital charges include straight-line depreciation and ROCE 9%

0

100

200

300

400

500

600

700

800

900

1 000

0 2 000 4 000 6 000 8 000 10 000 12 000

Cumulative capacity, 1000 t/a

EUR/t

Full Costs*

Manufacturing costs

Demand 2008

New demand

level 2009 (-20%)

Illustrative


Printing Profitability

HSWO

CSWO

RG

-Print run-

-Printing cost, EUR-

Rotogravure printing profitability is deteriorating due to ongoing market trends, e.g. decline in high volume, high quality magazine and catalogue markets.

Break even

• Declining circulations in general interest magazines

• Declining mail order market• Segmentation for smaller

audience• Lower print runs

• Overcapacity in printing

• Fight of printing jobs

Illustrative


Can Gravure Survive?

• New business models • Further concentration

Viability of the print value chain not possible when two players only hardly surviving

0

5

10

15

20

25

Raw materials Paper producer Printer Publisher

EBITDA of Sales, %IllustrativeIs the value chain a collection of

individual agendas?

Inefficiency

• Innovativeness throughout the value chain

• Superior products by adding features or functionalities


Pöyry Forest Industry Consulting GmbH

Erdinger Str. 43 bDE-85356 Freising

Tel.: +49-8161-4806-6Fax: +49-8161-4806-71Email: [email protected]

Internet: www.poyry.de

Thank you!Thank you!

trends and threats in publication printing in europe

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