Tough business conditions crush industry expectations: Hagop’s commentary

Despite a small reported lift in business confidence during the June 2008 quarter compared to the previous quarter, the latest Printing Industry Trends Survey Report shows business confidence is now at a level that is substantially lower than that of the same period a year earlier.

Participant companies from all states and originating from 15 printing and associated sectors covering the printing industry value chain participated in the June 2008 quarter Printing Industry Trends Survey.

According to Hagop Tchamkertenian, Printing Industries national manager for policy and government affairs, traditional season influences were clearly absent during the June 2008 quarter given the magnitude of the reported deteriorations compared to the same period a year earlier.

Hagop said that actual outcomes for a range of key economic indicators such as orders, production, sales, selling prices, net profits, employment and overtime levels were below expected outcomes.

Important June 2008 quarter developments reported by the survey respondents included:

* Reduced orders and production;
* Reduced sales and net profits;
* Reduced employment and overtime levels;
* Modest net balance increases in investment in plant and machinery during the past six months;
* Finance reported harder to obtain;
* Labour availability was reported to have deteriorated for the 16th  consecutive quarter;
* Increases reported across all production cost categories;
* Selling prices reported to have fallen for the 30th consecutive quarter;
* Reduced levels of raw material stocks; and
* Increased numbers of outstanding debtors.

On the critical indicator of capacity utilisation rates, the June 2008 quarter results show that 56.4 per cent of respondents were operating at capacity levels of 70.0 per cent or over, down from the 60.4 per cent proportion reported last quarter and the 65.2 per cent proportion reported this time last year.

The June 2008 quarter results show that 86.4 per cent of survey respondents ranked lack of orders as the primary barrier to increasing production levels, an outcome that is higher than the 76.2 per cent proportion reported during the March 2008 quarter and the 83.9 per cent proportion reported during June 2007 quarter.

According to Hagop over the outlook period industry respondents are forecasting reasonable net balance improvements to take place in a number of key economic indicators. Based on these forecasts the September 2008 quarter is expected to yield the following results:
* Net balance increases in orders, production, sales and net profits;
* Recovery in selling prices;
* Reduced availability of finance;
* Increased availability of labour;
* Reduced employment and overtime levels;
* Further increases in all production cost categories - average wages, other labour costs, and average material costs;
* Increased stock levels; and
* Increased number of outstanding debtors.

Over the next six months (September and December 2008 quarters) the survey respondents expect:
* Increased investment activity in plant and machinery; and
* Reduced investment activity in buildings.

The outlook for general business expectations over the next six months remains mixed with respondents from only three states - Victoria, South Australia and Western Australia expecting improvements. The most optimistic state is Western Australia with a net balance of 33.3 per cent followed by Victoria with a net balance of 29.4 per cent.

Respondents from Queensland reported the highest utilisation rates with 64.7 per cent of respondents operating at capacity utilisation levels of 70 per cent or more, followed by respondents from Tasmania (62.5 per cent), Victoria (58.8 per cent), South Australia (57.1 per cent), Western Australia (55.6 per cent), and New South Wales (46.4 per cent).

The June 2008 quarter report shows high capacity utilisation/activity rates were reported by the Business Forms and Continuous Stationery, Cheques and Securities, Digital Printing and     Quick Printing sectors. Considerable levels of excess capacity seem to have existed in the Trade Binding, Greeting Cards, Calendars and Diaries, Graphic Reproduction, Other Packaging and Paper Converting, General Promotional and Commercial and Screen Printing sectors.

Most product sectors are expecting either improvements or no change to take place in general business conditions during the September and December 2008 quarters, while three sectors comprising of Screen Printing, Quick Printing and Business Forms and Continuous Stationery are forecasting deterioration.

The sectors are either forecasting increased investment or no change in plant and machinery over the next six months, while the Labels, Business Forms and Continuous Stationery, Books, Magazines, Periodicals and Newspapers, Quick Printing and Screen Printing are forecasting reduced investments.

The latest survey outcome clearly shows that with the growth rate of the Australian economy slowing down, the impact of that slowdown is being felt by the printing and associated industries.

Noticeable industry developments during the June quarter included the worst net balance reported outcome for finance availability since the June 1989 quarter. Selling prices were reported to have fallen as well yet the industry is becoming more and more optimistic that prices will start to recover.

The June quarter outcome highlights growing cost pressures. Compared to the same period a year earlier material cost pressures were significantly more intense and average wage outcomes continued to remain significant during the quarter.

Hagop said the difficult trading conditions experienced by the printing and associated industries are likely to continue into the September quarter despite contrary industry forecasts. "Given the poor retail trade data of recent months the industry has a serious challenge in fulfilling its optimistic forecasts for the outlook period," he said.

He indicated that the next monetary policy move by the Reserve Bank will be critical in shaping the future economic fortunes of the printing and associated industries.

"If domestic demand continues to weaken and the Reserve Bank lowers official interest rates in response, and provided the banks pass on the lower interest rates to their customers, then industry conditions may start to stabilise during the fourth quarter of 2008," he concluded. 

Any one interested in obtaining a copy of the full survey report can contact Printing Industries. Hard copies of the report cost $20 for Printing Industries members and $40 for non-members. Electronic copies of the report are also available on request and cost $20 for members and $40 for non-members. Annual subscription to Printing Industry Trends Report is $60 for members and $120 for non-members.