12th forum of asian graphic arts technology

1. AUSTRALIA COUNTRY REPORT Economic Trends Presented by: Hagop Tchamkertenian National Manager for Policy & Government Affairs Printing Industries Association of Australia 12th forum of asian graphic arts technology FAGAT WEDNESDAY 4 – FRIDAY 6 MAY 2011 | SYDNEY AUSTRALIA 1

2. Economic Trends - Australia • Printing Industry growth has been very volatile over the past decade • During the past decade the industry has experienced 5 economic downturns/recessions • The only time the Australian economy came close to a recession was during the GFC • 22.5 per cent industry contraction reported during the GFC

3. Economic Trends - Australia • The trend in the unemployment rate has been a downward one over the past decade • During the GFC the rate increased but government intervention via fiscal stimulus packages and supportive monetary policy prevented it from rising to higher levels • At 4.9 per cent it poses certain challenges

4. Economic Trends - Australia • Headline inflation hit 5 year high during the March 2011 quarter • Headline rate is now above RBA’s upper target range of 3 per cent • Underlying inflation still within the RBA band of 2-3 per cent

5. Economic Trends - Australia • Wage growth rate in the private sector has now overtaken the public sector • For printing businesses labour costs are the second highest cost component after material costs • With unemployment remaining low any increased demand for labour will help push up wages

6. Economic Trends - Australia • Retail trade is an important driver of activity for the printing industry • The post GFC period has been soft • The last 6 months have been very weak due to consumers repaying off debt and the governments stimulus package ending

7. Economic Trends - Australia • The Australian dollar has been a star performer in the post GFC period • Significant appreciation recorded against major international currencies • Being a commodity based currency it has benefited from the commodity boom • Positives and negatives for the printing industry

8. Economic Issues Facing Australia • Moving towards lower carbon economy - the debate over the Carbon Tax/Emissions Trading Scheme • Ageing population – future labour supply issues, taxation and pension expenditure • Moving people into productive work opportunities – almost 800,000 people are currently on disability pension • Post GFC period characterised by subdued consumption expenditure – consumers are reducing their debts • Two speed and sometimes three speed economy • Danger of wasting the proceeds of the “resources boom” • High Australian dollar hurting export and import competing sectors • Headline inflation trending up potential flow on effects for wages

9. Economic Profile – Australian Printing • When all the components of the “broader” industry are included, the pulp, paper, printing and publishing industry is a significant contributor to the Australian economy.

10. Economic Profile – Australian Printing • A breakdown of printing industry shows that it is concentrated in the east-coast • The 3 main states of NSW, Victoria and Qld account for 86 per cent of industry sales, employ 84 per cent of the workforce and pay 84.2 per cent of the wages and salaries Source: ABS

11. Economic Trends – Australian Printing • The printing industry has not recovered from the GFC • It remains doubtful whether sales will ever recover to pre-GFC levels • Sales have now fallen for 4 consecutive quarters

12. Economic Trends – Australian Printing • New capital expenditure has been very weak in recent quarters • Investments were brought forward to access the government’s investment allowance during the GFC • June and September 2009 quarter surge due to the investment allowance

13. Economic Trends – Australian Printing • Trade in printed matter has been trending downwards in recent months • Appreciating Australian dollar has not yet caused a surge in imports of printed matter • Structural issues likely the cause – demand for printed matter has not yet recovered to pre-GFC levels • Unlikely that it would either

14. Economic Trends – Australian Media • In revenue terms some traditional media are growing and are forecast to continue to grow • However because the growth rate is much lower than “emerging media”, their share of total advertising expenditure continues to fall • Printing businesses that rely purely on traditional forms of media face weak growth prospects • Those targeting all media have good growth prospects Source: PWC

15. Economic Trends – Australian Printing • Printing Industries Association of Australia internal research shows business confidence remaining positive • However compared to same period a year earlier, confidence levels are lower • The GFC impact is also clearly evident

16. Economic Trends – Australian Printing • The most recent survey results show increased idle capacity • Approximately 52 per cent of survey respondents reported to be operating at capacity levels of 70 per cent or more • The presence of idle capacity is another reason for the weak investment outcome and outlook

17. Economic Trends – Australian Printing • Capital expenditure intentions over the six months to September 2011 have weakened significantly • The fall in intentions correlates with the reported fall in capacity utilisation rates

18. Economic Trends – Australian Printing • Selling prices were reported to have fallen once again on net balance basis during the March 2011 quarter • The latest reported fall represents the 41st consecutive fall! • The outlook is for further falls

19. Economic Trends – Australian Printing • Our survey shows great reported volatility in net profits • Very few net balance increases reported during the past decade • During the GFC period significant margin pressures

20. Economic Trends – Australian Printing • After peaking in the December 2008 quarter, material costs have since trended downwards • The moderating nature no doubt largely due to the appreciating Australian dollar • Given the reported reductions in selling prices, the reported moderation in material costs in a welcome development

21. Economic Trends – Australian Printing • The other major cost factor wages was also reported to have moderated during the March 2011 quarter • The moderation is partly due to ongoing industry rationalisation/consolidation which is helping up free skilled workers • However unlikely to become a medium term factor

22. Economic Trends – Australian Printing • Finance availability started to deteriorate in March quarter 2008 and continues to this day • Labour availability increased during the period of the GFC but over the past 5 quarters modest net balance falls have been reported

23. Economic Trends – Australian Printing • The economic performance of commercial printing – established sector versus digital printing – emerging sector • On all key economic measures, other than capacity utilisation, digital printing sector has outperformed the commercial printing sector • Most of the new investment is also taking place in the digital printing sector

24. Issues Facing Australian Printing • Green Issues: • Lack of investment in training • Pace of technological change • Red Issues: • Price competition • Commoditisation of print • Idle capacity • Price competition from imported print • Shift from hard copy to soft copy • Reduced volume • Poor cash flow management • Increased bad debts • Lack of management skills • Orange Issues: • Environmental perceptions of industry • Lack of government support • Volatile sales • Poor image of industry amongst school leavers • Ageing population • Lack of succession planning • Increasing operational costs – energy • Accessing finance • Difficulties in attracting and training apprentices • Moving beyond “ink on paper”

25. AUSTRALIA COUNTRY REPORT Thank you…. ありがとうございます。 감사합니다 बहुत बहुत शुक्रिया 12th forum of asian graphic arts technology FAGAT WEDNESDAY 4 – FRIDAY 6 MAY 2011 | SYDNEY AUSTRALIA 25