Peak printing quarter fails to deliver on sales

Low capacity utilisation rates confirm soft underlying economic conditions during the September quarter, which is normally associated with peak industry activity.

According to Hagop Tchamkertenian, Printing Industries national manager, trading conditions remained weak in the printing and associated industries during the quarter.

“Once again the forecasts for a range of key economic indicators remain positive confirming the general level of overall optimism amongst industry participants. Whether the breakthrough will occur during the December quarter and reported outcomes will match expectations remains to bee seen,” he said.

On the critical indicator of capacity utilisation rates, the September quarter results shows that only 54.9% of respondents were operating at capacity/activity levels of 70.0% or over, lower than the 63.0% for the same period last year.

South Australia had the highest utilisation rates with 81.8% of respondents operating at capacity utilisation levels of 70% or more, followed by New South Wales (61.8%), Western Australia (54.5%), Queensland (52.6%), Victoria (40.6%), and Tasmania (33.3%).

Tchamkertenian (pictured) forecasts the December 2011 quarter is expected to yield:

• Net balance increases in orders, production, sales and net profits,
• Reduced employment and overtime levels,
• Reduced availability of finance,
• Increased availability of labour,
• Lower selling prices,
• Reduced stock levels,
• Further net balance increases in all production cost categories - average wages, other labour costs, and average material costs,
• Increased number of outstanding debtors

Over the next six months survey respondents expect:

• Marginal net balance reductions in investments in plant and machinery,
• Moderate net balance reductions in investment activity in buildings

Outlook is mixed

The outlook for business expectations remains mixed with respondents from New South Wales, South Australia and Western Australia forecasting improvements, Queensland respondents forecasting deterioration, while respondents from Victoria and Tasmania expect no change.

Most sectors are forecasting improvements or no change to take place in general business conditions during the next six months, while books, magazines, periodicals and newspapers are forecasting deterioration in business conditions. Over the outlook period the most optimistic sectors are the greeting cards, calendars and diaries and labels.

Most sectors reported no change or reduced investment in plant and machinery. Digital printing and graphic reproduction were the exceptions, while folding cartons, other packaging and paper converting, business forms and continuous stationery and labels sectors are forecasting increased investments. Graphic arts machinery and supplies and books, magazines, periodicals and newspapers intend to increase investment in buildings.

In terms of general observations and emerging trends, while there has been a modest improvement in both business sentiment and reported capacity utilisation rates from their recent lows, long term employment intentions registered a significant deterioration during the September 2011 quarter.

Selling prices continue to trend downward and there is renewed evidence of build up of material and wage pressures; the largest states. New South Wales and Victoria reported the largest falls in net profits. The cash flow position of industry participants continues to come under stress and industry expectations generally were once again not met for a range of key industry economic indicators.

Tchamkertenian predicts that the industry will have to change production methods in the face of rising energy costs. “The Printing Industry Trends Report indicates that cost pressures are once again resurfacing within the industry, which will require an appropriate managerial response. The industry now faces ongoing higher energy costs which need to be addressed by both changes to operating processes and consideration being given to adopting cleaner and less energy intensive technology.”

Despite the Federal Government securing the numbers to pass its controversial carbon pricing mechanism through parliament, Tchamkertenian says the business climate for printers continues to remain uncertain.

Pivotal September 2011 quarter developments reported by the survey respondents include:

• Reduced orders and production,
• Reduced sales and net profits,
• Reduced employment and overtime levels,
• Reduced investments in buildings and plant and machinery during the past six months,
• Finance reported harder to obtain for the 15th consecutive quarter,
• Labour availability reported to have deteriorated for the 7th consecutive quarter,
• Increased material and wage cost pressures,
• Selling prices reported to have fallen for the 43rd consecutive quarter,
• Reduced levels of raw material stock levels,
• Increased numbers of outstanding debtors