Industry-wide surveys from commercial enterprises often make good copy. Some reader caution is necessary, however, when they are as doom-laden as the latest labeling report from Plimsoll Publishing Ltd. “Zero growth, sliding profits and escalating debts have pushed over a quarter of the UK label industry to the brink of failure,” says David Pattison, Plimsoll’s senior analyst. No punches being pulled there, but surely things are not as black as they are painted? After all, if new press installations are any guide, then the UK market has been doing reasonably well in the view of most label press manufacturers. Plimsoll’s summary is probably right, however, in stating that supply continues to outstrip demand (fueled by all those new presses?). It says consolidation is the only answer.
Anyway, here is what the Plimsoll Portfolio Analysis: Labels – Third Edition 2003 has to say. It is intended as a health check on 576 label printers, converters and some trade suppliers; as with Plimsoll’s other industry reports, companies are rated according to their overall financial strengths. The categories are: Strong, Good, Mediocre, Caution or Danger, (the first two are based on four years of results). Plimsoll says 49 percent of companies rated have now deteriorated in overall financial strength from last year’s ratings, and 99 companies are experiencing their second year with a Danger rating.
Companies with this rating are really suffering, says Pattison. “Their balance sheets are now straining under heavy debts and this, combined with companies already losing money, could be a fatal mix. Strictly speaking, a company cannot stay in our Danger rating. Either it will improve or disappear. It presents a great opportunity to rebuild, or for a new owner to acquire it.”
Plimsoll rates 164 label-related companies in this manner, including 39 of the UK’s top 100 label printers. It names 24 companies as being tipped to prosper out of any consolidation because of their strong recent performance and a healthy sales growth. However, over one third of the UK industry is supposed to be taking a loss and almost half of companies have failed to grow.
Average profit margins last year were 2 percent on average. For those companies where debts have been accelerating, interest payments are taking their toll. In fact, 32 of the UK top 100 label companies are currently loss-making.
Average growth in the UK label market was 0.4 percent last year with only 89 companies increasing sales at a rate greater than inflation. It seems that only an elite few seem to be tapping into the future of the industry.
“A couple of years ago companies would have tried to trade their way out. But now, because margins are so low, ‘trading out’ is becoming less and less possible. Some companies’ debts are so high that even with five or 10 years of generous profitability, they still would not be able to make a dent in their debts. That is why I see acquisitions as simply inevitable,” says Pattison. (Copies of the report may be ordered online at www.plimsoll.co.uk, or by telephone at 44-1642-626400.)