Australian Printing Industry Economic Trends and Prospects

1. Australian Printing Industry Economic Trends and Prospects Presentation by: Hagop Tchamkertenian National Policy & Research Manager Printing Industries Association of Australia March 2007

2. Presentation Overview • Economic performance of the Australian Printing Industry • Economic growth • Sales and pre-tax profits • Capacity utilisation • Capital expenditure • Primary barrier to increased production • Production, sales, selling prices and net profits, debtors, labour availability, average wages • State by State comparisons • Will things get better? An outline of industry challenges • Is there hope? – Printing Industries programs and initiatives

3. Interpretation of the Charts • The official data is presented in percent or percentage basis • Non-official data sourced from the Printing Industry Trends report is mostly presented on balance percent basis • Balance percent is calculated by subtracting the proportion of respondents reporting improvements from the proportion reporting deterioration • For example: if 40 percent expect business conditions to improve and 25 percent expect business conditions to deteriorate then the balance percent is positive 15 percent (40 less 25) • While balance percent outcomes do not measure magnitude of change for a given indicator, they represent directional movement (trend) for a given indicator. Positive balance percentages imply improvements

4. Compared to Australian economy printing industry remains volatile • Past 5 years: 11 periods of economic downturn & 4 recessions

5. Printing once of twosectors reporting declining activity • Increased reported activity in retail trade, finance, property and communications industries good for printing industry

6. Industry sales rebound • Can sales be sustained?

7. Cost pressures again an issue in most recent period

8. Publishing sector seems to have ability to charge higher prices but not printing • Moving up the value chain does not necessarily mean higher prices

9. Global pulp prices continue to trend up • Prices now passed record levels in monetary terms • With Australia a price taker Australian printers may be faced with price increases over the next couple of years

10. The data applies to companies with 20 or more employees • Extreme volatility • Latest data shows improvements in pre-tax profits

11. Fourth consecutive quarter fall • Investment had been very robust until March 2006 quarter • May see another decline next quarter

12. Improvement reported during December 2006 quarter • But compared to same situation a year earlier industry is less confident about future business prospects

13. Labour and capacity constraints increase in significance

14. Welcome improvement in capacity utilisation rates • For the first time in the past 5 years there has now been 3 consecutive quarters of reported improvements

15. Robust expectations have been replaced by weaker intentions • Consistent with sentiments reflected in official data

16. Second consecutive quarter rise • Net balance lower than same period last year

17. Similar pattern to production • Forecast remains positive

18. Downward trend in selling prices continues

19. Improvements in profits likely outcome of cost savings

20. Cashflow management remains a problem with actual outcome exceeding expected outcome

21. Labour availability reported down for 10 consecutive quarters • Clear implications for labour costs

22. Unemployment rate at generational low poses problems for printing businesses seeking skilled labour • Strong correlation between falling rates of unemployment and worsening labour availabilityin recent period

23. December 2006 quarter reported outcome is the highest outcome in 11 years. • Further increases expected during March 2007 quarter

24. State by State Comparison Outcomes Net balances used for sales, profits, selling prices and investment. Capacity utilisation – results capture proportion of respondents operating at capacity levels of 70 per cent or more Source: Printing Industry Trends Report

25. State by State Comparison Forecasts Net balances used for sales, profits, selling prices and investment forecasts Source: Printing Industry Trends Report

26. SummaryPrinting Industry • Printing industry once again expanding • Sales and pre-tax profits reported up • New capital expenditure fell for the 4th consecutive quarter but this should not be a concern due to the recent period of strong investments • Improvements reported in orders and sales • Idle capacity improved for 3rd consecutive quarter • Selling prices continue to decline • Cash-flow management remains an issue • Availability of skilled labour an ongoing concern • Wage outcomes at 11 year high

27. Will things get better? Business climate likely to remain challenging one due to the following factors. Environmental factors: • Extended Producer Responsibility for printing and writing papers/office papers • National Packaging Covenant – emphasis on reduced packaging • Junk Mail Campaigns – targeting direct mail items

28. Will things get better? Globalisation: • Offshore tendering • Free Trade Agreements Technological: • Developments in multi-media • Cost of new technology Market conditions: • Printed matter treated as a commodity good • Managing a hybrid business – manufacturing/services • NSW and to lesser extent Victorian economy less robust than other economies “missing out on resources boom”

29. Will things get better? • Recruitment of labour: • Difficulties in attracting young people to the industry • Skilled labour shortages • Upward pressure on wages Succession planning: • Printing Industries research shows that more than 38 per cent of business owners surveyed are planning to exit the industry within 5 years and almost 64 per cent within the next 10 years • Yet 31 per cent indicated that they had no business succession plan

30. Is there hope? • Print21 Business Diagnostic Tools • On-line Benchmarking • Leading business practice models from process benchmarking study • China engagement project • Succession planning course • Access to overseas economic, marketing, technical resources • Talk to PIAA - your partner in business