For the first time in several years, the survey found that there was a positive balance in selling prices and margins in two consecutive quarters. But it had come at a heavy cost with a high number of closures and redundancies.

The theory is that consolidation would result in companies being able to put prices up, as the gap between high capacity and falling demand is narrowed. But many in the industry observe that they haven’t improved enough and that the margins remain particularly low.

Up from a low base
David Ross, an independent economics consultant and author of Directions, argues that while the survey suggests that margins have improved, it doesn’t tell the whole picture.

“I am not saying that everything is rosy,” he explains. “It is improving, but from a very low base.”
But for Tyrone Spence, joint managing director of Buckingham Colour Quest (BCQ), there isn’t a link between consolidation and an improvement in prices.

“If you merge two companies then you are not changing the dynamics of the industry. You may reduce overheads to an extent, but I don’t see how that can affect your margins.”

Last year, Spence’s firm, Colour Quest, merged with fellow Milton Keynes com­pany Buckingham Colour to create BCQ – a B2 specialist with a turnover of around £11m.

Both companies linked up to get critical mass, improve workers’ job security  and bring economies of scale to its customers.

According to Spence, the mood of the merged firms is upbeat but, because of the overall state of the industry, profitability has to come from areas other than prices on printed materials.

“It’s more about improving productivity from within your own company,” he says.

Mike Dolan, managing director at Media & Print Investments, who is building a sheetfed print group through acquisition, agrees that improvements in profitability should come from within a company.

“It’s about better utilising your machines, not necessarily about increasing prices,” he argues. “If you have a plant that is running at 50% capacity with fixed overheads then you have a low margin.”
Dolan’s group has been one of the more active players in the market, acquiring several firms in the past year, including sheetfed magazine printer Friary Press to create a £25m operation.

“A lot of printers are [financially] on the border line or making a loss,” he observes. “But the industry represents great value.”

Nicholas Green, chief executive at Tangent Communications, has also been heavily involved in merger and acquisition activity. He says that investments should be made to grow your company.

“Consolidation is an ugly word,” he argues. “It has connotations with reducing companies or slimming down workforces. We want to buy companies that add value to what we already do and that is all about growing our business.”

Branching out
Tangent has been busy on the acquisition front and is now more than just a print firm specialising in direct mail. It has boosted its turn­over by venturing into the web-based arena and broadening out into areas such as e-marketing.

Its latest acquisition, of Newcastle-based Raven­sworth Digital Services doubled the group’s size to around £16m. The acquisition gives Tangent a base in the North and gives it a firm footing in the property sector.

“Companies that add value will not suffer margin pressure,” says Green. “We are not a conventional printing business and other businesses do need to adapt.”

It feels as though print has been consolidating for some time now but, according to PKF corporate finance consultant Richard Brewster, it’s still early days. He argues that the market will only radically change if two big players were to merge.

“If you had a major merger, then the print buyers would have to sit up and take notice,” he says. “Two big boys together would be significant and the climate would improve for those selling print.”

Until that happens, margins are likely to remain low and any improvement is likely to go alongside more firms exiting the market and more redundancies.

As David Ross says: “Many companies have either bitten the bullet and merged, or have taken the cyanide pill and ceased trading.”

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HIGHLIGHTS FROM DIRECTIONS
• Percentage of companies working below capacity improved from 82% to 62%
• In three months since the last survey, 10% of respondents reported “some kind of change in ownership” through merger, acquisition takeover or “some other non-organic means of achieving growth”
• Positive balances were recorded for selling prices and margins on sales. But that has come at a cost with many companies going into liquidation and heavy redundancies
• In the first quarter of this year, there was a positive balance for the general state of the industry