MW - It's been an interesting year or so for Prinovis, what with the shake-up in the European gravure market, and more recently the developments with News International. There must have been some trying times.

RG - So News of the World closed. That was a shock. I don't think anyone saw that coming. We had some concerning moments at that point. There aren't that many 3m-run-length magazines out there in the market. So it would have been worrying had that disappeared.

Fortunately NI has taken another bold decision to place Fabulous Magazine into their Saturday product: the Sun. So that's good news for us, and good news for printing.

MW -But presumably that has had some impact in terms of polybagging?

RG - Yes, we polybagged the Saturday product and the Sunday product and now there's only one polybag, but we still polybag the Sunday Times, we still polybag the Times, but yes there is some loss there for us, without a doubt.

MW - In terms of work mix, how is that changing?

RG - News International represents roughly 50% of our volumes. This year we'll put around 185 kilotonnes of paper through the plant. We will polywrap around 400m bags, and in addition we will saddle stitch numerous products. Also, this year we also invested in a perfect binding line because we want to make sure we can deliver a full solution.

So we have News International, and then the same again in terms of other volume. Our other key clients include, Northern and Shell with OK magazine, Burda UK, Argos, Boots Asda and Shop Direct Group we're probably running around  75% - 80% contracted volume,  and 20% of our volume requires regular renewal.

MW - Is that changing? I'm thinking in terms of Sky Magazine

RG - Sky Magazine made a structural change in terms of their marketing leading to Sky stopping the production of the largest customer publishing title in the UK and Europe, they have chosen to use other channels than print and mailing in the future. We very much hope that Sky will see what the printed product delivered for them in the past and maybe look again in the future at using print as a major marketing medium. We don't know at this stage, but we're here to help them whenever.

MW - What sort of impact did that have?

RG - In terms of impact in the UK, it's clearly huge loss from a sales perspective,  the vast majority of that volume wasn't produced in Liverpool but at our sites in northern Germany.  I think we can say fortunately, with the demise of Schlott, it hasn't been too difficult to replace that volume this year in our northern German sites.

We do however have to be concerned when companies such as BskyB, who understand the benefits that print can offer, make the decisions about their marketing budgets that drastically reduce the use of the printed medium.  BskyB’s decision should be worrying for the printing industry, not just Prinovis.

MW - And the binding line, tell us a little more about the type of work going through that?

RG - We bought the Kolbus perfect binding line because we already had customers on board who required a perfect-bound product, we felt we could make a return on investment, and we thought we could offer our clients a better service by binding their product within the Liverpool facility.

We currently have a number of regular clients products going through the Kolbus line including  Red Bulletin and, most recently a large proportion of the 7.5m catalogues we printed for Ikea this summer. It's been running pretty much 24/7 ever since it was installed.

MW - I understand that you are putting together teams to explore what other services Prinovis could offer beyond print and what the appetite might be for them. Can you expand?

RG - We have a solutions development team who are working on a number of projects, most of which are at very early stages. They work alongside our sales people talking to UK-based clients to investigate opportunities to help our clients. We're looking at how we can help our customers be more effective with printing, as well as deliver solutions to other problems they can't yet resolve.

MW - So it's a pain point approach?

RG - We want to find out what they need and deliver bespoke solutions. We don't want to go to clients saying, well we can print that for you, but we're not really interested in your other problems. We're a service provider, not just a a printer.

If you look at our ownership structure, Prinovis is a Joint Venture between Bertelsmann companies and Axel Springer - one of our major shareholders is Arvato, which is a BPO company. So from logistics solutions to CD presses, and digital downloads to call centers we see there are opportunities to deliver broader services alongside our traditional printing based services.

MW - First off you have these iPhone and Android apps you are developing.

RG - Right, so for us we have to be seen as a service provider to our client group and we have a tremendous relationship with a lot of blue-chip clients. What we have to demonstrate to them is that you can trust us in delivering your content, We've been trusted with their content in the print world for many years so why should we not be trusted to deliver their content in other communication channels?

MW - What sort of feedback are you getting on this? I wonder whether as a brand owner you might want to have more control over these projects? What would you say to customers that might argue that for something as new as this they might want to use their own designers and developers?

RG - I think we stand at a dawning point for a lot of businesses - we've all known for some time of the challenge presented by the internet, but more recently these digital channels have developed fast. 3G smartphones for example have only become mainstream over the past 18 months. Many businesses want to utilise these new platforms and see them as a strategic differentiator. At the present time many businesses are developing their online and mobile delivery themselves. Whether they will continue to want to deliver those services themselves in the future time will tell.

We are trusted with their print content delivery, so why should we not be the trusted partner to help them deliver their content down other communication channels? After all, historically  some print customers used to have their own presses. Then they outsourced that service to us and others.


MW - What sort of take-up have you experienced?

RG - I would say we're still at the starting line. We can see strategically that it's an important area for us and that there are some opportunities that will present themselves to us going forward. We've developed a mobile business in our central European area.

That was the natural place to start and includes everything from QR codes for responses through to iPhone applications and other platforms The turnover is currently still quite small in comparison to our printing business but its growing and is certainly helping our clients see we can do more than just deliver traditional printing services.

We have one case study that is with a company called Hornbach, they produce catalogues - I suppose you could call them the B&Q of Germany - and one of the things they realised was that when they want to get a message to the people going into their stores the catalogue works for them. But if they want to promote then they need to do that a little more often and actually the internet doesn't work because if you're a builder you don't sit on the internet all day.

But  all their clients did have a mobile telephone and so a solution involving reading a promotional 2D barcode from the catalogue which can be redeemed in store has proved tremendously effective. The code can either be read from a catalogue or sent via SMS directly to the clients mobile telephone.

So you're linking the catalogue through mobile communications, through to a marketing experience for a particular demographic or group who perhaps aren't accessible by different means. So it's an opportunity to help our clients reach their marketing aims.

MW - Are you not just cannibalising your catalogue business with this though? Or is this simply a recognition of the changing nature of that market - shorter run lengths, more targeted, more often, but then how does that fit with the type of work that Speke is most efficient at producing?

RG - So to answer the questions in order - is it cannibalising our business? No. In terms of print volumes, we don't see these mobile marketing solutions cannibalising printing, they are more an opportunity to link the printed product to the online or mobile world.. It's adding another solution, another service for the client, making them more effective.

At the end of the day, it's all about response and ultimately a converted sale. All we're doing is helping our client deliver a better response and more sales.

MW - Is this reflective of how catalogue printing is changing?

RG - Well there are a number of changes happening throughout the industry. First we can see that home shopping is having an increasing impact in comparison to traditional bricks and mortar, however we have also seen some big home shopping companies go to the wall over the past few years, so it's not a universal truth.

What we can see is a segmentation in the market, and we can see in that within the retail mail-order and home shopping space there are groups that see print as becoming a more effective medium in enabling them to deliver audience to their web sites, and to differentiate their offering in an increasingly congested internet world. There are some who see that perhaps the very big main catalogues are less effective than in the past but  want to contact their clients still with a printed product and reach them a little bit more frequently. 

There are some mail order companies that like to use the internet for order intake, but they don't necessarily want their customers searching the internet every time they want to buy a product.

So in a world of congestion on the internet, the catalogue can represent a way of getting a customer to return because you already have their address - they've bought once - you can remind them you're still around and if they pick up your catalogue then they're not searching the internet but going directly to you.

Going back to marketing communications, how good would it be to connect your catalogue directly to your web page so that no-one has to go through Google and potentially find a competitive product?

MW - I want to go back to my question about the continued suitability of Speke for catalogues, if run lengths are decreasing.

RG - Well the thing about run lengths is that this is dictated by price. Let's be clear, we'd be happy to produce one copy as long as the price was right!

MW - That's a bit of an easy answer

RG - Yes, but it very much depends upon the product. I think there is a little bit of an obsession here about gravure, web offset and different mechanisms for putting ink on paper.

I would say that the vast majority of clients aren't that worried about how we put ink on paper, it's a printing industry obsession. What the majority of customers are interested in is: The right quality , can it be done to a schedule that I need and is the price at a level that I'm prepared to pay?

We shouldn't get so hung up about run lengths.

Gravure has some tremendous benefits - it has almost infinitely variable formats which web offset presses aren't quite as good at, but then the make ready times are always going to be higher.

MW - Well let's go back to the beginning of Speke. Stephan Krauss said that a 200,000 print run would be economical to do there. Now it's all up and running, what's your view of that?

RG - I'm convinced that, if all things are equal, we can be competitive at 200,000.

MW - What percentage of work at Speke is from UK customers?

RG - At Liverpool I'd say we are around 95% UK bound volume, .

MW - And how much if any spare capacity is there?

RG - In Liverpool we are running very close to 100% of technical capacity, and certainly if we look at our plants across Europe in the second half of this year, they're running close to 100% capacity also.

 MW - Which means you can charge what you like?

RG - I don't think it works quite like that! Remember there's still overcapacity in the web offset sector - there are plenty of products that sit happily in both, I think there are some product that used to print gravure that now happily sit on web offset presses. Then there's significant gravure competition across Europe.

MW - Could you see a time when web offset is dining off the crumbs of the gravure table

RG - I don't think anyone will be making that analogy!

MW - But do you think that web offset will benefit as run lengths decrease?

RG - First, if you look at recent investments in web offset capacity across Europe,  web offset presses getting wider and wider, so there is a bigger and bigger encroachment of offset into traditional gravure markets. There are 96-page offset machines being installed in a number of European businesses currently. While at the same time I think gravure has probably reached its limit in the 4.32m presses we have in Speke, so I don't see gravure getting wider.

So that central part of the market may become pretty congested but there will still be that top end where gravure is excellent and a bottom end where those run lengths are better suited to a web offset press.

MW - So would anyone buy another gravure press?

RG - Well the answer to that is yes. Prinovis just bought two presses: 3.6m TR10 presses from the Schlott insolvency, but whether anyone would buy a new one? I’m sure they will, but whether or not that will be in publication printing in the near future in the European market, that's a tough question.

I think the printing industry as a whole is realigning its demand supply side to reflect the post credit crunch reality. There's the odd 96pp or 80pp offset going into Europe, but not significant investment in new presses anywhere in the UK at present. One of the difficulties with these assets is that they cost very large sums of money.

Until shareholders can see a 10- to 15-year investment is going to see a return, then I can't see many people putting their hands in their pockets for big new press investments. I don't think there will be lot of investment in gravure or web offset capacity right now.

MW - So what's your view on the current market and the turmoil in web offset

RG - We've had a steady growth of capacity and a steady decline in demand. Coupled with a marginal erosion in price between 2005 and 2008. Then the financial crisis hits and there was a step change, where there was a substantial over supply and reduction in demand which led to short term decisions about pricing, which were absolutely necessary to stay alive.

Now, across Europe, there are plenty of businesses out there that can't survive at the prices they had to offer during the crisis. We all understand marginal costing but the sum of all marginal costing in the long run is bankruptcy.

Every single part of the value chain engaged in producing a printed product and getting it to market, ultimately in the long term has to make money and return investment or capacity will leave the market..

Unless profitability returns then further capacity will leave the market and I think what we're seeing right now is that realignment. The economic crisis has left some businesses in a difficult position in terms of pricing and profitability and they have been forced to take work for volume at a lower price than they would otherwise have done so.

In addition in the last 12 to 18 months we now find ourselves in a position where we have massive inflation in terms of raw material input, such as ink, paper and energy costs.

The printing industry therefore finds itself at a point where pricing cannot go lower, it must increase. We like others can't see a situation where the changes in raw material pricing are not passed on to clients.

MW - Is that happening at Prinovis?

RG - Absolutely, yes.

MW - And how do you have those conversations? Are customers understanding?

RG - First we still have to be sensitive to the clients' needs. At the end of the day, the customer is always the customer. We have to understand where they are from a business perspective, but equally we have to explain to them how we are affected, and how sustainability in the long term is good not only for Prinovis but also the customer.

Clearly they need a printed product produced as well. And one of the things that marks us out across Europe is that we are able to offer a very sound, secure business - almost a safe haven.

We're well funded, financially sound. In the UK and Europe we have businesses that are EBIT positive in 2010. In terms of the UK, despite a high capital outlay at the start, we are able to make a return on investment, so we have a very sound business plan built around some great clients.

But even in that world we have to make the right decisions around how we price.

MW - You were saying that margin pricing is not the way forward?

RG - Anyone who has worked in any business knows that there are times and places where you will marginally price work. We have to understand that if we marginally price work as an industry, then in the long term we will not be able to reinvest - it's not possible to reinvest when you're not going to make a return. If you don't pay for the asset, no-one's going to give you the money to invest.

We can see that happening already in the UK print industry - in terms of the level of closures, insolvencies and unprofitable capacity coming out of the market.

MW - Do you think we'll see more deals along the lines of Haymarket and Wyndeham hedging prices for a fixed period into the future?

RG - Reading that article talking about sustainability, and where you're saying "fair pricing" - I think that's exactly what I'm saying. And it seems the team at Wyndeham are exactly aligned with how we see the situation - businesses at every level need to be profitable in the long term because without that they're not going to be in the market and providing the services the customers need.

Both publisher and printer rely on each other, because without each other we don't actually deliver anything to the end client the reader. 

I was delighted to see a fair pricing model. I think that's a fantastic idea and I think it shows some significant leadership by both Haymarket and Wyndeham.

MW - Are you talking to Prinovis clients about those kinds of deals at all?

RG - I don't think we've used those words. But we're certainly talking to clients about price. We see a very mixed picture because we have some long term contracts which need to be discussed in quite a different way to some of the capacity that has been negotiated on a slightly shorter time frame.

We have to think about this on a client by client basis, and we also have to reflect on where the clients finds themselves.

And if we go back to what we were first talking about in terms of print versus other channels of content delivery we have to be careful that we don't make print so expensive that other channels become that much more viable or palatable.

So the term fair pricing is a great one because we do have to find that balance, that hasn't been there probably since 2007. There needs to be a realignment to truly reflect the value that print delivers..

MW - We're hearing at the moment that gravure is pretty busy.

RG - Well gravure is even more of a Europe-wide market, and on that European level we've seen the second biggest gravure printer in Europe go insolvent. Schlott Group represented about 400,000 or 500,000 tonnes of capacity per annum. Some of that ex Schlott volume has been bought back with Burda buying Sebald, so that capacity still exists, but a substantial amount will disappear. In addition, Circle Printers in France are going through a restructuring. Whether that leads to capacity coming out of the market we've yet to see, but it sends a signal that there is something severely wrong with the balance between price and cost of production.

If you look  locally in the UK, we've seen DH Greaves, and  DC Thomson close and three of the four presses at Varnicoat shut down. The reason simply put is that that capacity was uneconomic.

MW - But are you saying that these businesses are failing, that these changes are taking place, because the businesses are structured badly, or because the capacity just isn't there.

RG - I don't know that I could answer for other businesses, but what I can say about Prinovis is that we never make an investment unless we can see a return in the long term, and unless we have clients already onboard. In addition we have the most fantastic modern gravure plants in Europe here in the UK.

In fact in the UK we have probably the two most modern gravure plants in Europe if not the world. So we're well serviced by both Polestar Sheffield and Prinovis Liverpool

MW - Is it a case then of there simply not being enough work to go round, or are you suddenly finding there's a load of customers out there who no longer have printers?

RG - It's a realignment of capacity in line with demand. So yes while there are some clients that are finding it hard to get the slot they want and much harder to dictate exactly what they want. But we still have peak volumes and not-so-peak volumes at different times of the year.

But I don't think that realignment is finished yet. There will be more capacity coming out of the market, from gravure Europe-wide and in the UK from a web-offset perspective.

I don't see Sheffield or Prinovis Liverpool reducing our capacity.

MW - How competitive will these changes make the UK in relation to Europe?

RG - I think that Sheffield and Prinovis Liverpool have some tremendous advantages - they're both new efficient plants, in the UK, so closer to the domestic customers thereby reducing time to market.

MW - And how is the business performing in terms of numbers compared to 2009?

RG - Higher than 2009.  In 2009 we were still growing volume with the last of the NI packages coming on board in the middle of that year.. One thing I would say is that I don't think some of the commentators in the printing industry really understand how long it takes to build a plant, get it running efficiently and get clients on board to get up full speed and profitable and  returning investment.

So 2008 we were still in the build phase, even though we started running the first press in 2006. In 2009 we had the first positive EBIT year. 2010 we had higher EBIT than 2009 and achieved a return on our investment for the first time and in 2011? I would say we expect a similar outcome to that we saw in 2010.

MW - In terms of turnover - you were talking about growing this business - can you give us any numbers?

RG - So for the Liverpool plant it would be €100m for 2010, and we would expect a similar financial performance 2011.

 MW - So you're in a good place at the moment?

RG - It can always be better. Well there's good and bad. Clearly there's still uncertainty about how News International goes forward, so we have to see what that means over the coming months.,We also have to see what's happening on our cost side in terms of rampant inflation not least with raw materials and energy.

What we're seeing is the demand for worldwide commodities driving Raw material pricing  that's partly driven by world economic recovery but also uncertainty around world events that can have a significant impact on wholesale energy prices.. So yes I'm concerned about those things.

I'm concerned about how we grow our business in future, and I'm concerned about how print can deliver a fantastic solution to clients and how we offer a broader service to make that as attractive as possible in an increasingly internet and mobile world.

I think generally shareholders and clients are happy with where we are at the moment but we also have to be realistic that we sit in a market where there is a decline in demand and therefore we have to get better at what we're doing. We can't be complacent.