Sectoral Report of Bank Austria Economics Department:
Structural change with Austrian printing companies continues
- Sales for printing companies contract by 1 percent in 2014; sales volumes drop below EUR 2.3 billion
- Employment down by 6 percent in 2014, and by almost one-third overall during last ten years
- Printing companies suffering above all from weak domestic demand, but also from growing import pressure; high costs jeopardise competitiveness
- Still no economic stability in sector, in spite of improvement in earnings
- Further drops in sales revenue likely in 2015, principally owing to weak advertising activity
In the 2014 financial year Austria's printing companies posted contracting production and sales results for the fourth year in a row. The provisional production output of the sector dropped by 2 percent, with sales revenue dipping by roughly 1 percent to below EUR 2.3 billion. What is more, employment fell by almost 6 percent. The latest sectoral report from Bank Austria on Austrian printing companies and publishers demonstrates that the structural change among printing companies has barely lost any pace, even after two decades. The industry has gradually lost contracts since the middle of the 1980s or so owing to the spread of increasingly efficient digital technologies. In the last ten years, employment in the industry has contracted by one third to 10,700 people.
Bank Austria economist Günter Wolf: "Aside from weak domestic demand for years, printing companies in Austria are also hampered by the growing competition from neighbouring countries. Printing contracts are increasingly awarded in Austria to foreign firms". Until November 2014 the imports of other printed products, first and foremost advertising materials and catalogues, rose 8.6 percent to EUR 333 million, while the import of printed and publishing products overall dropped by 1.5 percent to EUR 822 million. The additional import volume of EUR 25 million comes predominantly from the Czech Republic, Slovenia and Germany.
The competitiveness of Austrian printing companies suffers mostly from high cost levels. In 2012, wage costs per printing firm employee in Austria totalled an average of EUR 48,000, compared to EUR 36,000 in Germany, EUR 17,000 in Slovenia and EUR 11,000 in the Czech Republic. Structural factors are likely to be behind part of these high cost differentials, which also explain the relatively high profits of Austrian printing companies by international industrial comparison. In the 2012 financial year the industry posted a return on sales of 2.3 percent, while German printers generated a figure of 1.6 percent (no data was available for the Czech Republic and Slovenia).
Although the earnings position of printers in Austria has already improved, the sector is not yet in a stable economic situation. Bank Austria economist Günter Wolf: "An analysis of the balance sheets prepared by Austrian printing companies from the 2012/2013 sample of the Austrian Institute for SME Research shows that in addition to incomes, the average equity of the enterprises has risen sharply in recent years too, totalling 19 percent in 2009 compared to 30 percent today. That said, sitting at 30 percent the share of overindebted companies is still very high, as is the share of companies with a negative operating result (39 percent)."
Further setbacks on the cards for the printing industry in 2015
The economic success of printing companies depends largely on advertising expenditure for printing contracts. According to Wolf at Bank Austria, "Almost 60 percent of gross advertising spending in Austria or more than 2 billion euros is channelled into 'media relevant for printers', where it influences circulation numbers of newspapers and magazines indirectly by means of ads, or is used directly to print brochures, newspaper supplements or posters. Thus the printing industry as well as newspaper and magazine publishers are quite sensitive to fluctuations in advertising activity and to the gradual reduction of advertising spending in media that is important for printers." From 2002 to 2012, spending rose by an average of 5 percent each year, but in 2013 this figure was only 1.3 percent, while in 2014 advertising expenditure in the industry contracted by 1.7 percent for the first time since statistics have been available.
The outlook for 2015 is barely any better. Economic growth in Austria will remain below one percent, despite support from the weaker euro and the favourable commodity prices, and will consequently weigh down on expectations in the advertising industry. Advertising budgets will presumably be raised only marginally overall, and part of this will be allocated to online media. This means that the newspaper advertising market along with the printers can expect to see further reductions in demand and production.
Gloomy prospects, but not hopeless
The internet is set to gain more market share from printed media in the future. Even though we primarily send emails and do shopping online, and only one third of users regularly read online newspapers, the printed media have long since lost a great deal of content and services to the net which can be offered there for free. This is resulting in more shakeups in the markets of both industries. "Nonetheless, Austria's book and newspaper publishers will not only publish and print niche products in future but also mass media. Likewise, printers not associated with publishers will continue to receive contracts provided they offer a satisfactory customer service", said Bank Austria economist Günter Wolf in conclusion.
Enquiries: Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 50505 - 41954;
E-Mail: guenter.wolf@unicreditgroup.at