The global media and entertainment sector has witnessed a seismic change over the past decade, with digital media completely changing the traditional revenue model for many of the key players in this sector. Businesses that were dependent on a purely print and offline model have witnessed advertising revenues diminish at an alarming rate, whilst those at the forefront of the digital revolution rapidly took market share. Such was the speed of this change that even established names such as Kodak were unable to change their model fast enough to adapt. The rising cost of raw materials coupled with aggressive competition and the burgeoning digital era is leading to increasingly tighter margins within the printing industry, pushing companies of varying sizes to breaking point.
We have worked on a number of cases in recent years and 2018, unfortunately, carried on in the same vein with high levels of distress and the need for directors to tackle their challenges as early as possible in order to ensure long-term prosperity.
The malaise of the print sector hasn’t been helped by the uncertainty and concerns over Brexit and the correlation between the corporate world of banks, funders, credit insurers and supporting services that run in parallel with the sector’s clients who are all taking a ‘cautious’ view and the extent to which they can invest. But whilst Brexit is looming large, there are a number of other threats clouding the industry at present.
- HMRC is taking a tougher stance with companies falling behind with tax liabilities and we are seeing less and less support for ‘time to pay’ arrangements either being approved or indeed given much time. There are many investigations going on across the industry with regards to VAT as numerous print companies are adopting a ‘smoke and mirrors’ approach to their waste materials i.e. paper and plates which have inherently been a cash element input back into the business, but the VAT department has taken a dim view on the actual levels being returned back to the company.
- There has been a huge ‘jump’ in new tech with the dawning of LED drying technology. This means new presses are arriving with ‘instant’ drying capabilities of the printed sheets resulting in immediate use of the sheets for cutting or other production routes. This is a massive leap forward. The downside is that it has an immediate impact on printers that have bought machinery over the last few years and the second-hand values. Example: 2014 Heidelberg machine new worth £980k, recent 2017 value £450k, now worth £350k. This is putting pressure on a resale or indeed refinancing possibilities. Balance sheets are also overstated and incorrect.
- Credit insurance companies are still very much dictating the credit market, setting levels that are not workable for majority of cash flows or suppliers.
- We are seeing a high percentage of companies making losses, breaking even or small profits with the owners looking for ways to turn things around or exit strategies. Typically we see companies averaging 85% capacity which equals break-even and they are trying to get to the magic figure of 90% or higher which will start to see significant positive performance effects. That elusive 5% uplift is proving, for most, to be an impossible bridge to cross and achieve because of competition, costs and other sector pressures.
- Competition for funding. Over the last few years we have seen a vast array of different funders coming into the market place adding possible confusion to seek the best possible facilities for each print company leaving the directors with the uncomfortable decision to make the right choice. Many make the wrong choice; generally, funders do not understand the sector, working mechanisms, and assets. This is where print specialists, such as RBR Advisory, can add value.
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