The Year in Review: The U.S. economic downturn, combined with the tragic Sept. 11 terrorist attacks, has made 2001 a difficult year for the ink industry.
Then came a series of brutal terrorist attacks on Sept. 11 against the U.S, leaving nearly 4,000 people dead and the lives of so many families and friends shattered by the death of loved ones.
The attacks also had an impact on the U.S. economy, further deepening the downturn. As our nation looks ahead to 2002, it is uncertain when the economy will improve. It is certainly a concern that is on the mind of leaders in the printing ink industry.
A Difficult 2001
The printing ink industry had a particularly challenging year in 2001, with the overall ink market down year to date about 5 percent in dollars and 7 percent in volume.
"Overall, 2001 been a very tough year for both the printing and ink businesses," said Kathy Marx, vice president of marketing and strategic planning at Flint Ink. "We were hoping for a 'soft landing' for the economy by year's end, but that obviously isn't going to be the case."
"The economy has affected us, and the industry in general," said Harvey Brice, president of Superior Printing Ink. "It's been as bad a year as I can remember. The question is whether the economic downturn is going to stay with us. The government is trying to stimulate business. Lowering interest rates will also help, but it hasn't had a major effect yet. The downturn in the economy has been happening for the whole year, long before the terrorist attacks. We believe that business began to ebb in October 2000. We felt that it might have picked up, but Sept. 11 kicked everybody that much harder."
"The printing industry closely mirrors activity in the U.S. economy," said Chris Morrissey, Sun Chemical vice president of sales and marketing "Without a doubt, printing activity is down."
"The market has been worse than forecasted, especially after the attack on Sept., 11," said Tak O'Haru, president of Toyo Ink America.
"The economic downturn has impacted us globally," said Jim Bitterle, Flint Ink's vice president, news ink. "On a region by region basis, we've found our business levels have reflected the business levels in the regional economies. In Asia Pacific, coldset and heatset web sales have been extremely soft. Commercial sales have been slightly impacted while packaging sales have been very steady. Even in some slowing economies, our packaging sales have improved versus prior year. In North America, our news ink sales have declined proportionately with the reduction of newsprint consumption.
"I believe the Sept. 11 events accelerated the slowdown that was already in existence," Mr. Bitterle added. "Within the newspaper industry, a recession has been in place for the better part of 2001."
As is the case throughout the industry, INX International Ink Co. has faced challenges during the past year.
"The normal sales growth we expected this year has not materialized," said Rick Clendenning, INX International's president. "I think everyone is experiencing the same situation. We see our commercial side of our business being impacted more than our consumer packaging segments. This has made us take a harder look internally to control our costs and become more efficient in everything we do.
"INX is doing very well during this most difficult time," Mr. Clendenning continued. "We are concentrating on driving our costs down while pushing our sales groups to get more of our products to market. This type of activity is basic business practice and we are doing a good job of getting back to basics."
"As our country experiences an economic downturn that now appears to technically be a recession, Color Converting is fortunate to be a packaging ink company heavily tied to food and medical applications," said Ronald Barry, chairman and CEO of Color Converting Industries. "This is probably as 'recession resistant' as we could hope to be."
There is also a concern that a few customers may be unable to pay their bills due to financial losses.
"The downturn of the economy has certainly affected all segments of the market," said Jim Bennett, Flint Ink's vice president, commercial division. "We have seen sales drop throughout the year even though our market share has increased. We are also seeing more and more companies not being able to meet their financial obligations. Some companies have filed for bankruptcy protection."
"The current economic downturn is certainly a concern," said Mike Impastato, vice president, market development, Flint Ink. "I don't believe it will have a long-term effect, but short term it creates disruptions as everyone along the supply chain adjusts their production, buying patterns and inventories. The major concern I have is related to the viability of some of our customers and suppliers during this downturn. Lower revenues impacts cash flow, which in turn pushes borrowing levels higher. Companies on shaky ground already may not be able to service this higher debt burden. As an industry, we need to pay very careful attention to receivables."
Impact on Printing Segments
While the economic problems that have occurred in the printing industry are pretty much across the board, there are specific segments that have declined more than others.
"Strong performers were packaging and direct mail," said Mr. Bennett. "Poor performers were all other sectors."
Commercial printing is one area where there has been a serious decline.
"I wouldn't really classify any areas as 'strong' at this juncture," Ms. Marx said. "I think the weakest are those most closely linked to the economy, particularly the small commercial segment."
"During the whole year, the segment that appears to be the biggest impacted by the slowdown has been the general commercial sheetfed printer," said Jim Leitch, chairman of Braden Sutphin. "The demand has just not been there all year for general commercial work."
"It appears that some segments are down more than others," Mr. Morrissey said. "For instance, heatset offset printers have been hit hard because advertisers and catalogers have made drastic cuts."
Brad Bergey, corporate vice president, operations support for Sun Chemical Corporation and chair of NAPIM's Management Information Committee, said that corrugated ink sales appear to have been the most affected.
"The biggest decline appears to be in corrugated, where there aren't as many durable goods being shipped," Mr. Bergey said. "You're probably seeing a mix change in packaging, with the lower priced items like corrugated being down further. There seems to be a little softer market in flexo, with gravure being more stable."
Still, there are areas of growth, particularly in digital inks.
"The performance of our digital division has been very positive in 2001," said Mike Green, vice president, Flint Ink's digital division. "The division is rapidly growing in the DOD industrial ink jet industry. We now have water, solvent and UV DOD inks, which have been approved by Spectra. Our 2002 prediction is to double our digital division in size.
On top of the emotional devastation of the tragic loss of life caused by the terrorist attacks, the economic impact of Sept. 11 has reached across just about every industry.
"Of course, Sept. 11 accelerated problems," said Mr. Brice, who watched the tragedy at the World Trade Center occur from outside of Superior Printing Ink's Manhattan headquarters. "Everything up an down the line has been affected by the attack. Economically, the country almost stood still in all markets - look at the airlines. It almost stagnated the economy. It creates a ripple effect; people will not see better sales or accounts payable until November."
"Sept. 11 affected sales for the month of September," Mr. Bennett said. "It seemed as if the industry went 'on hold' for four to five days. However, October seemed to recover back to pre-l1th sales."
"The slowdown that began early in the year has obviously been accelerated by the events of Sept. 11," Mr. Barry said. "The world has fundamentally changed, in obvious ways and, I believe in ways that we are not yet able to define. As events unfold, we must maintain our resolve to eliminate the people and the philosophies that produce their extremist acts of terror."
"The Sept. 11 tragedy occurred at a time when the economy seemed to be teetering on the edge of recession," Mr. Morrissey said. "It is difficult to say whether this action pushed our economy into recession or is just making the downturn worse. One industry trade group estimates that the immediate impact on printers was the loss of 2 percent of their annual sales."
"There is no doubt that the month of September really came to a standstill as a result of Sept. 11," Mr. Leitch said. "People had a hard time focusing on business for several weeks after the attack. It seems we are getting back to more normal times although the slowdown still remains. Business still seems to be in a wait-and-see mode."
Mr. Clendenning said that INX is coping with the aftermath of both the economic slump and the tragic events of Sept. 11.
"The tragedy on the 11th definitely slowed things for the balance of September, but October picked back up for us," Mr. Clendenning said. "Our country is suffering because of these horrible events, but as a nation we are coming together, and I feel everyone will come out of this difficult time stronger, business-wise and individually."
In order to survive, companies in virtually every industry have had to reduce costs. In many cases, that requires eliminating capital improvements, advertising and in dire cases, laying off employees. The ink industry is no exception.
"Everybody is cost-conscious;" Mr. Brice said. "We're doing the best we can. There isn't anybody escaping the problem. In some cases, it means letting people go, cutting down inventory, spending less money on advertising and capital investments. We're looking for ways to reduce overhead. Advertising and promotions are areas that get cut first. We've implemented cost-reduction plans, and we've been economically conservative. We're very fortunate that we don't have any long-term debt."
"The economic downturn has made BSI evaluate where we are spending dollars to make sure we are getting the greatest return or impact for the dollars spent," Mr. Leitch said. "A slowdown like we are facing makes you evaluate everything -- entertainment dollars spent, contracts for uniforms, waste disposal, electrical suppliers. During these trying times, we have also worked very hard to provide even greater value to our customers. We want to make sure our customers know that we are 'standing with them' in facing these difficult times. We have also tried to use this time to improve internally so we are ready to respond when the demand picks up."
"Cost cutting is imperative, and with the continued economic slowdown, small firms teetering on the edge of financial viability are going to be acquired or closed," said Ms. Marx. "The segments most affected are those that are most closely linked with the economy and advertising expenditures: publication, news and commercial segments."
Gans Ink & Supply is also working hard to successfully deal with the economic downturn.
"Gans is coping fairly well," said Jeff Koppelman, president of Gans Ink & Supply Co. "Our overall business this year is not down a great deal, and in addition, we have instituted many cost saving and expense reduction measures to improve the bottom line."
Keeping a close eye on expenses is a necessity in these difficult times.
"We're actively trying to minimize variable costs during this economic slowdown," Mr. Bitterle said. "Given the margins in our industry, we have no choice but to be aggressive cost managers during slow economic periods."
"We are keeping a very close eye on our expenses," said Mr. Impastato. "This is no different than most companies in the industry. During the first quarter of the year the financial pundits predicted economic recovery mid-year. In the second quarter the prediction slipped to late third quarter. Now most people have taken a wait-and-see approach. I think the best approach we can take is to think strategically, but manage expenses to match current business levels until we see the economy turn around."
"We in the commercial division are working harder and smarter and trying to gain market share during this time," said Mr. Bennett. "We're taking the advice of Henry Ford who said, 'Business is never so healthy as when, like a chicken, it has to do a certain amount of scratching for what it gets.' Unfortunately we have had to make some hard decisions to reduce our overall manning to meet the current demand."
"Like any prudent business, Sun Chemical is making every effort to keep costs under control so we can continue to offer quality products at competitive pricing," Mr. Morrissey said. "Cost-cutting by itself cannot sustain a business. We continue to seek other efficiencies to stay competitive."
Unfortunately, some companies have had to reduce their workforce.
"In terms of the industry in general, there has been some fall out in terms of employment through reduction of workforce, which is too bad," Mr. Leitch said. "At BSI, we have been fortunate that we have not had an actual layoff."
"From a people standpoint, I think the widespread occurrence of layoffs has brought a reality to the downturn of the economy," said Glenn Autry, vice president, human resources at Flint Ink. "I think there is an anxiety about the future and whether additional layoffs are likely."
One key to weathering an economic downturn is developing innovative products.
"INX has always been a company driven by technology developments and that has not changed," Mr. Clendenning said. "In fact, I feel we are stronger than ever in our R&D area. We have a number of new developments that we are very excited about and will be sharing very soon."
"We have several new products in the pipeline and some that should be launched next year," said Ms. Marx. "We're very excited about the future in terms of new products."
It is imperative for companies to develop opportunities, whether it is improved manufacturing processes, creating new products or focusing on specific markets."
"We've built an infrastructure for manufacturing sheetfed inks at our central manufacturing facility in Hamden, CT, which is ISO certified. That makes us unique," Mr. Brice said. It's an economic advantage for us, and it also provides better quality. We built this to ensure that our inks are the most consistent in the world."
Energy-cured inks are one area where continued growth is forecast. Mr. Brice believes that hybrid IJV and UV inks are areas of particular growth for the ink industry. "We're going forward with UV hybrids," Mr. Brice said. "We think this will be very important for us in the future, and we're working on less complicated formulations."
"New generations of UV and EB products are doing a better job of meeting user needs, and will result in increased sales," said Dr. Joseph Raksis, senior vice president, research and new market development at Flint Ink.
"Flint Ink has made significant developments in our radiation cured products -- Gemini Matrix and Arrowbeam ink systems have all been very well received by the market place and put Flint Ink in a strong technical position in the radiation-cured offset ink market," said Graham Battersby, Flint Ink's vice president, research and development.
"Sun Chemical has been a market leader in several areas that appear to have potential continued growth," Mr. Morrissey said. "For example, the growth in energy curable inks and coatings continues to outpace most other ink market segments. The capital costs to equip a press with energy curing units continue to come down, making the process more viable. Printers also see the quality and environmental benefits of UV and EB technology as an opportunity to realize higher profits. In addition to its full line of UV and EB inks, coatings and adhesives, Sun is pioneering innovative products like its Hy-Bryte Max hybrid inks and coatings."
Packaging inks is another market segment where product development is occurring.
"We are optimistic about a new generation of laminating inks that are providing sophisticated users the ability to dramatically reduce cost in their operations," Mr. Barry said.
"We have several new technologies that we are excited about," Mr. Impastato said. "To name just two, we have a new series of UV offset inks for the folding carton market that exhibit improved printability, and a new high performance laminating ink system for flexible packaging."
"In the packaging inks market, flexible packaging continues to grow because it offers end users increased sales due to such factors as improved graphics and longer shelf life," Mr. Morrissey said. "Sun Chemical continues to develop new products for surface and lamination printing that can help converters innovate in this evolving market."
Research on digital inks is also imperative, as companies look to make gains in this quickly-evolving market.
"The move to shorter run printing is triggering development of a new generation of computer-to-press presses, but wide usage is still years off," said Dr. Raksis. "The movement of digital technology into industrial printing is viewed optimistically by many, but current technology is generally inadequate and improvements are needed. System approaches to take time and cost out of the overall printing process are in demand, and various approaches are being introduced."
"Digital printing has taken a major share of the wide format poster market and we continue to position ourselves for the expansion of digital inks into other markets," Mr. Battersby said.
Printing ink manufacturers are continuing to work on other key areas, ranging from single fluid inks to flexo. "We continue with our development and beta testing of SF1 - this technology continues to show its potential to have a major impact on the lithographic printing industry," Mr. Battersby said.
"Braden Sutphin has been on the leading edge of the no fountain solution inks over the past year," Mr. Leitch said. "We feel this technology will find a niche in the market and can make a positive contribution to our environment with the elimination of certain pressroom chemicals. Also, every day we are making progress in water-based technology. As we gain experience, we are helping our flexographic customers raise the bar in the quality of print."
Research and development continue to play a critical role in the success of companies.
"The depressed economy puts even greater pressure on R&D than normal -- we need new high performance inks, low cost technology and new manufacturing techniques -- and we need it all yesterday," said Mr. Battersby. "The pressure is clearly on R&D to play a major role during these difficult times."
"We are spending record amounts on R&D," added Mr. Bitterle. "Some products in the pipeline could dramatically change the printing process."
"Packaging ink is technically the most challenging segment of the ink market," said Mr. Impastato. "We see performance criteria continuously evolving, and innovations that push packaging into new and more demanding areas. A strong R&D capability is essential to being a supplier to the packaging ink market.
"In combination with a strong R&D capability is the need to partner with our customers, so we can begin the ink development early in the package development stage," Mr. Impastato said. "In the past, it was not unusual to be told a new ink was needed shortly before a job was ready to go to press. By having regular meetings with our customers' technical and marketing personnel we can define those future needs. We can then focus our R&D efforts, and complete the ink development prior to production scale up of new packages or structures.
"An essential step in our developmental process is to establish clear quantifiable connections between end use requirements and laboratory testing," Mr. Impastato continued. "An example is the typical scuff testing done on surface printed inks. Our customers are not interested in our inks passing a specific number of rubs on a rub test machine with a four-pound weight. Instead, they want to be assured that the package will continue to look fresh after surviving the rigors of its distribution system. We sometimes forget the goal, which is to produce a product (ink) that works as an integral part of comprehensive packaging performance."
Concentrating on specific market segments can also benefit a company.
"Our strategy is to focus on specific areas where we still experience a good amount of growth even in this economy, and consolidate our resources into those areas," Mr. O'Haru said. "We are also working hard to get into new market segments by unique ways and we are expecting good growth within two to three years. There is a good opportunity to review what we have done and what we would like to do. I have no doubt that there are many valuable hints for our long term business plan in the market place, so Toyo Ink will see more customers and listen to them more than ever."
A company also has to offer its customers more than excellent products. It also has to able to provide solutions on other concerns.
"Today, it is more than ink on paper," Mr. Leitch said. "Braden Sutphin is a company that provides solutions to our customers in so many areas beyond just ink in a can. And we look forward to doing it. We have been in the business of helping customers for 88 years and we feel we have a lot to offer customers. Our customers are running a business just like we are at Braden Sutphin and if I can offer a suggestion on how we control health care costs or any other area, I am going to offer that expertise to our customers."
"A focus on value-added goods and activities is more important than ever," Mr. Barry said. "The concept of value-added carries with it the obligation to produce tangible results. I believe that the message here is that if you are really good at what you do, then this is a great time to be in business."
Thoughts on An Economic Turnaround
When that economic upturn will be is anybody's guess.
"I don't have a crystal ball, but from all indications, I definitely feel that 2002 will be another difficult year for all of us," Mr. Clendenning said. "Hopefully things will start turning around by the end of next year."
"Printers and suppliers I speak with don't see any change for the better until 10 to 12 months from now," Mr. O'Haru said.
"The Federal Reserve and the U.S. government have taken several rapid steps to bolster the economy," Mr. Morrissey said. "If these actions take hold, we may see a recovery taking shape by mid-2002, as many economists now predict. We don't know if the printing and ink markets will lag behind the recovery. A recent article in USA Today showed that advertising expenditures in 2001 should total about $192 billion, down about 6.6 percent the first serious drop since 1942. Ad expenditures could erode even further, which would affect all media -- not just print. Any signs that consumer confidence is rising are likely to spur more advertising as consumer goods companies vie for those dollars."
Like most experts, Mr. Bergey sees little hope for gains until mid-2002.
"I don't think we're going to see any relief until the end of the year, and not a whole lot better numbers until the second, third or fourth quarters of 2002," Mr. Bergey said.
A lack of confidence in the economy is also having an impact.
"I sometimes feel that the media, through so much negative reporting, almost talk businesses into a slowdown," Mr. Leitch said. "Each day you read in the newspaper about this layoff or that shutdown and it makes you believe things are even worse than it is. And it starts to domino throughout the economy.
"I would hope that the end of the first quarter 2002, things would turnaround," Mr. Leitch continued. "I believe it has to be lead by the blue chip sector through better earnings. People in general gain confidence in our economy through main stay companies -- GE, Microsoft, etc."
"I believe that we will begin to see an economic recovery towards the third and fourth quarters of 2002," Mr. Bennett said. "We should see the results of the federal monetary policies begin to take effect early next year."
"In the news ink division, We expect the economy will begin its recovery in the third quarter, 2002," said Mr. Bitterle.
Other industry leaders suspect the turnaround may be further off into the future.
"I think the outlook for 2002 is more of the same based on economic predictions and industry forecasts," said Ms. Marx. "I think we'll be lucky if an economic turnaround occurs in 2002."
"I hope we are wrong, but we are prepared to face a lagging economy for at least the next two years," Mr. Barry said. "Overall, even in this bleak political and economic climate we see opportunity for strong growth in 2002."
Optimism for the Future
Even with all that has occurred in 2001, Mr. Barry and Mr. Brice are unreservedly optimistic about the future of the U.S. and its economy.
"I don't want to sound preachy or be an alarmist, but I believe we must all strive to not give in to fear," Mr. Barry said. "In Color Converting's humble way, we intend to aggressively continue adding our little piece into the macro-economy. This means our people will continue to travel to meet our customers' needs and our aggressive capital expenditure program will continue.
"We feel fortunate to be operating in the greatest marketplace the world has ever known," Mr. Barry added. "While we grasp the grim realities of the war on terror, we recognize that the economic engine of this country will always reward the bold and the courageous."
"All things being equal, we should rebound next year," Mr. Brice concluded. "We'll expand with the economy when it rebounds. We're a very resilient country. We should all be very proud of that."
RELATED ARTICLE: NAPIM's Surveys Show Downturn
The year 2001 has been particularly difficult for ink companies, and the numbers compiled by surveys conducted by the National Association of Printing Ink Manufacturers (NAPIM) offer a fairly clear picture of the industry in general.
"The ink industry has been dramatically down," said William P. Rimel III, NAPIM president and president and CEO of American Inks & Coatings. "Packaging inks are down 7.3 percent in pounds over the first three quarters and publication gravure and litho are down 8.7 percent in pounds. It reflects all that is going on, and even typically recession-proof markets such as packaging are being impacted. Right now, it looks very difficult, and it demands good management from everybody."
Brad Bergey, corporate vice president, operations support for Sun Chemical Corporation and chair of NAPIM's Management Information Committee, said that the results NAPIM is getting from its member companies don't fit normal patterns.
"You used to be able to see patterns, but now it's much more difficult to establish," said Mr. Bergey. "Traditionally, we at Sun see a seasonality in the publication markets, but this year has been very flat."
Mr. Bergey said that the decline in sales and volume of printing ink has been practically across the board.
"In terms of year-to-date figures, NAPIM has found that on the publication and commercial side, there has been a 6.2 percent decrease in ink sales, and 8.7 percent drop in volume sold," Mr. Bergey said. "What NAPIM's seen on the packaging side is a decline, but not as much as in publications. Inks sales are down 3.2 percent by volume, and 2.5 percent in terms of sales. The overall market is down year to date about 5 percent in dollars and 7 percent in volume."
Economy Slows Down Consolidation, but is a New Wave Imminent?
Unlike the previous few years, mergers and acquisitions have been practically at a standstill this year.
"We have seen a dramatic reduction in acquisitions throughout the graphic arts industry," said Jim Bennett, Flint Ink's vice president, commercial division. "However, we are seeing an increase in the rationalization of prior acquisitions."
"Overall, M&A activities are way down because of the shortage of funds and uncertainties about the future," said Dr. Joseph Raksis, senior vice president, research and new market development at Flint Ink. "However, for the right strategic acquisition, it's a buyer's market, and there likely will be some events."
Harvey Brice, president Superior Printing Ink, believes that there is the potential to acquire smaller companies. "I think it's an opportunity for us," Mr. Brice said. "We would certainly be interested in acquiring companies."
Other industry leaders agreed, saying that the opportunity is there to make acquisitions.
"I believe consolidation will continue," said Kathy Marx, vice president of marketing and strategic planning at Flint Ink. "In fact, now may be the best time to buy. We are always looking, but it's a matter of timing. It takes two interested parties to make an acquisition happen.
"In a period when business is tough and margins are squeezed, many companies don't have the cash to go shopping for acquisitions," said Chris Morrissey, vice president of sales and marketing at Sun Chemical. "This likely will slow consolidation activity. On the other hand, it won't just stop. The downturn could force some ink suppliers out of business or create opportunities for mergers/acquisitions."
"I believe the consolidation of our customers will drive a continuation of consolidation in the ink industry," said Ronald Barry, chairman and CEO of Color Converting Industries. "The economy may effect the pace of consolidation, but I believe the net result in three to five years will be a much more globally consolidated ink industry. I believe the continued pattern of increased imports of good quality lower-cost raw materials as well as finished inks will also serve as a driver to consolidation."
INX International president Rick Clendenning said that he personally believes the present economic conditions have only slowed down the mergers and acquisitions in the industry, and once the economy turns around, these should pick up again.
"The turndown has only put consolidations and acquisitions on hold for a while," Mr. Clendenning observed. "I believe that you are going to see even more activity in these areas once things stabilize, but who knows when that will be?"
The economy's downturn has also caused companies to lose value, which may lead to prices decreasing below acceptable levels for potential sellers.
"Earnings have been impacted during this slowdown and usually a company value is going to be based upon a cash flow or earnings stream," said Jim Leitch, CEO of Braden Sutphin. "Therefore, I believe most people interested in selling probably feel their companies may be undervalued at this time. In the same respect, I'm sure the economic downturn has made owners really think about their ability to remain competitive for the long haul."
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|Date:||Dec 1, 2001|
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