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Consolidation is impacting the European publication printing market.

Europe's publication printing sector seems to be entering a new phase of restructuring after the decision by Canada's Quebecor World Inc. in November to divest all of its European printing operations.

The activities, comprising 18 printing and finishing facilities with more than 4,000 staff producing mainly publication products, is being merged with those of RSDB of the Netherlands in a joint venture in which Quebecor will have a 30 percent stake and the Dutch company the remainder.

Since the new group, which will be the largest independent printing group in Europe with annual sales of 1.3 billion [euro] ($1.9 billion), will be run by RSDB managers, analysts believe that the deal represents effectively a withdrawal by Quebecor from the European market so that it can concentrate on its printing business in the Americas.

Because of poor margins, heavy levels of debt and substantial overcapacity, there will almost certainly be more mergers among Europe's leading printing companies in the publications market.

"More restructuring is inevitable," said Charles Murray, corporate vice president and group managing director, Sun Chemical.

"For ink producers there will be a shrinking number of customers, but that is something we have been facing for a considerable number of years," he added. "Consolidation is something we have to live with and accept. In fact, in many cases it has become a matter of consolidate or die.

"At Sun we ourselves have done a lot of restructuring," he continued. "We have grown in Europe through acquisition rather than directly through organic growth."

While ink makers in Europe have been reorganizing themselves so that there are now, for example, only three major suppliers of newspaper ink--Sun, Flint Group and Huber Group--huge sums have been invested by both printing and publishing companies in extraordinarily large gravure and web offset printing plants in the region.

Rotogravure presses have been installed with widths of more than 4 meters, while web offset machines have been introduced with capacities of 96 pages or an output of 90,000 newspaper copies per hour.


In order to ensure that the new mammoth, high speed presses have an economical utilization rate, their owners are taking business away from smaller, less modern plants. Newspaper publishers with new capacity have, for example, extended their activities into printing magazines as well as newspapers of other publishers.

"The huge overcapacity in publication gravure has followed the dramatic rise in capacity from green field projects," explained Ajit Vaidya, a technical manager at the European Rotogravure Association (ERA). "Large gravure plants in Europe now have annual outputs of 100,000 to 250,000 tons of printed paper per year."

In certain segments of the publications sector, gravure is now competing directly with web offset. Technological improvements in areas like the engraving of cylinders have made shorter runs commercially viable for gravure printing while large web offset machines are able to handle the high quality printing of magazines with large circulations.

"Magazines with sales of 300,000 to 400,000 copies are now being printed by gravure in Europe, whereas previously such a quantity would have been too expensive for the process since traditionally gravure needs long runs," said a sales manager at one European printing press manufacturer. "The economics of that sort of job are similar for both gravure and web offset. The result is that there is now a lot of undercutting of prices for both processes, which reduces the margins even further. Magazine and newspaper printing is not very profitable at the moment for the printers or their suppliers."

Like other suppliers to the publications market, ink producers have to deal not only with a relentless requirement for reductions in costs but also for advances in the technologies of their products.

"When presses are printing more than 80,000 copies per hour, there are physical changes to the parameters in which the inks have to perform," said Mr. Murray. "We are pushing the boundaries of ink technology. But by working closely with printing press manufacturers we have been able to provide inks to match the performances of their machines. Technologies will always be driven by new demands in this sector."

While presses have been at least doubling in size and at the same time operating at much faster speeds, the paper for newspaper and magazine printing has become much thinner. At the same time there has been a big rise in the use of color, with most newspapers having color on both sides of the page. Hence, ink makers have had to resolve the problems stemming from more ink being applied to less paper.

The quality of the paper has tended to improve in line with that of the inks. But in some cases the need for higher quality has had to be met by the ink producer.

Wolfgang Blumschein, Flint Group's vice president and general manager publication inks Europe, sees a decline in the standard of paper as being among the important current trends in the publications sector in addition to consolidation and high volume presses.

"(There is) a usage of low-quality paper grades and a need to match the demands concerning poor paper grades by reformulation of inks," he said.

Printing and publishing companies are at the same time wanting consistency in the quality of colors as a result of introducing color management and standardization systems, Mr. Blumschein noted.

The need to cut costs in newspaper and magazine printing operations has meant that an increasing range of services are being provided by the suppliers themselves, including not only the ink producers but also press manufacturers.

"I think the press manufacturers are following the example of the ink producers," said Mr. Murray. "We have been providing services to publication printers for some time. We are looking after the whole supply chain for them by managing their inventories, not only for inks but other consumables as well."

Flint Group has been reorganizing its logistics in order to accommodate the specific requirements of large publication printing plants.

"To meet the higher demands per site, we have optimized our internal and external logistics and offer our customers tailor-made logistics concepts," said Mr. Blumschein. "This is managed by our supply chain management being part of the management team. In reality, we do not only sell inks but also services to our clients and an optimal supply chain service is highly valued by our customers.

"Flint provides very extensive technical service with a highly experienced team of technicians all over Europe," he added. "Depending on individual customer requests, we also offer individualized services--e.g press audits, support for color management, ISO certification support etc. As the quality of a print job depends on various factors, collaboration with other suppliers to our customers--like press and paper manufacturers who play a much higher role than in the past--is an essential part of this technical support."

Huber Group places such a strong emphasis on services as a commercial activity that it has created its own business unit, which charges for its services and is separate from the group's inks operation. The company has set up an Ink Academy for the training of printers in all aspects of ink.

"We are not seeing much demand yet in the newspaper and magazine printing sector but we are only in the early stages of our development," said Olaf Wanke, head of the Ink Academy, based in Munich, Germany.

The press manufacturers have also been putting together large service packages. MAN Roland, the market leader in web offset newspaper presses, offers three sets of services. Because of intense competition, particularly in the web offset segment dominated in Europe by MAN Roland and Koenig & Bauer Group (KBA), the provision of quality services by equipment manufacturers has become crucial.

KBA will be able to focus more on its web offset business as a result of pulling out of the gravure segment by selling its business in the process to Cerutti SpA of Italy, the market leader in rotogravure.

Equipment manufacturers have benefited from a surge in investment in large presses over the last few years. But it is already showing visible signs of wilting.

KBA reported in its third quarter results a decline in demand for its bigger presses, which had caused reduced capacity utilization in its manufacturing plants, forcing it to terminate temporary labor contracts.

The big investments have also left printing companies with high levels of debt, which will be a driving force behind further consolidation in the publications sector. Polestar of the UK, one of the top five printing companies in Europe in terms of capacity, was saved from financial collapse late last year when its bankers agreed to turn their loans into equity. Nonetheless, the company still has total debts of 257 million [pounds sterling] ($532 million).

Before the deal with RSDB, Quebecor' European operations were recording a margin of only 1.5 percent on earnings before interest, taxes, depreciation and amortization (EBITDA) after investing 140 million [euro] in production facilities in the region over the last three years.

In further imminent restructuring moves, the survivors among the large printers will be those owned by the publishing companies--like Prinovis, Europe's No 2 following the RSDB/Quebecor merger and jointly owned by the top German publishers, Bertelesmann AG, Gruner + Jahr and Axel Springer AG.

News International, the UK's leading newspaper publisher and part of News Corporation, the New York-based media group, is investing around 600 million [pounds sterling] in three large printing plants in the UK. This will make it a leading member of a growing group of European publishers which are becoming commercial printers and as a result putting massive pressure on independent printing companies.

By Sean Milmo

European Editor

European Editor Sean Milmo is an Essex, UK-based writer specializing in coverage of the chemical industry.
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Title Annotation:european REPORT
Author:Milmo, Sean
Publication:Ink World
Article Type:Industry overview
Date:Dec 1, 2007
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