Latest BPIF Report Predicts Rocky Road to Recovery for Print Sector

Mark Halstead Analysis

Like many sectors, the print industry has not been spared from the impact of Covid-19. The British Printing Industries Federation (BPIF) – the UK’s leading trade association for print, printed packaging and graphic communication – recently released its latest quarterly industry trends report for Q3 2020. Their Printing Outlook report paints a picture of a sector struggling to inspire confidence in the face of continued lockdown and Brexit uncertainty.

Red Flag Alert contributes to the BPIF report to provide the industry with highly accurate, detailed data that is used to gain valuable insight into the state of the sector. In this article, we’re going to take a closer look at the final report – with a particular focus on Red Flag Alert’s analysis.

Significant Financial Distress Is on the Increase

The BPIF’s previous report saw the sector hit an all-time low in Q2 2020. But there was hope for recovery during Q3, with customer confidence and demand expected to bounce back.

True enough – but the revival was short-lived. The Covid-19 resurgence, compounded by Brexit uncertainty, means an industry comeback will be slower than expected.

During Q3, the number of printing and packaging companies experiencing significant financial distress has increased once again, with almost half of respondents expecting to make redundancies before the end of the year. The general feeling among many businesses is that there has been a lack of support made available to the sector throughout this period, despite hopes that Brexit would be a boon for British companies.

Red Flag Alert Data Shows an Increase in High-Risk Companies

Red Flag Alert data showed that while the number of printing and packaging companies experiencing critical financial distress decreased in Q3 (likely due to government support schemes), there was an increase in those in significant financial distress.

The exact number of companies in significant financial distress in Q3 2020 is 2,274. This is a 7.1% increase from Q2 and a 10.4% increase from Q3 2019, strongly indicating the heightened financial stress still to come.

Red Flag Alert also analysed the financial health of the top 5,000 largest print and packaging companies and found some interesting insights. The percentage of companies in a strong and secure financial position decreased from a high of 43.3% in Q4 2019 to 39% in Q3 2020.

The percentage of companies with an average credit risk has decreased, whereas those that are considered a higher credit risk has increased from 21.7% in Q4 2019 to 25.4% in Q3 2020. Although the proportion of high-risk companies is small, Printing Outlook reports it is on the rise, having grown from a low of 3.2% in Q2 2011 to a current high of 9.2% in Q3 2020.

Let’s take a closer look at some more of the issues highlighted in the report:

Output and Orders

The previous report saw both output and orders drop by around three-quarters in Q2 2020 – worse than its lowest point in Q1 2009 following the global financial crisis.

While Q3 exhibited a recovery of sorts, it hasn’t bounced back high enough yet. While 35% of printers managed to increase their output levels in the third quarter of 2020, the projection for output in Q4 is not expected to improve along the same trend path.

Order volume paints an almost identical picture, showing a significant improvement from Q2 but expected to decline in Q4. In October 2020, 54% of respondents reported having ‘worse than normal’ order books for the time of year.

Employment

Nearly half of all printers decreased their workforce during Q2 2020 – those that managed to achieve steady or increased employment were assisted by government support schemes.

While the employment balance in Q3 was an improvement on Q2, overall it was still a negative balance. Unfortunately, the forecast for Q4 suggests there are more job losses to come, with over one-third of respondents planning to reduce employment levels.

Exports

Exports have offered a welcome lift to several companies in recent years and while some disturbance was anticipated, the cause was expected to be concerns related to Brexit rather than a global pandemic.

Only 10% of UK exporting printers were able to hold their export order levels steady in Q3 with a declining trajectory expected for Q4, making this the first period to experience four quarters of consecutive negative balances in export orders.

Margins

Margins on sales remain under intense pressure, with only 14% of businesses reporting increased margins compared to 50% that stayed the same and 36% reporting smaller margins. The Q4 forecast gets worse – only 6% predict that they will be able to increase margins, while 42% anticipate further reductions.

Insolvencies

Q3 2020 saw 16 new company insolvencies in the printing industry across England, Wales and Scotland. However, thanks to government measures in response to Covid-19, this figure is actually 43% lower compared to this time last year and 11% lower than in Q2.

Things Will Get Worse Before They Get Better

Even though the industry shows signs of recovery, there is still a lot of uncertainty. Confidence improved in Q3 as more firms were able to pick up orders and boost output, but in light of the Covid-19 resurgence and extended lockdowns, expectations are now lower for Q4.

Managing the economic fallout of the pandemic remains the most important concern for businesses, with lack of demand and employee absence due to illness hindering a more complete recovery.

Companies also continue to express concerns about the impact Brexit may have on their business, with particular reference to supply chain security – 62% believe that no deal would have a negative impact on their business, while only 7% believe it would be positive.

How Red Flag Alert Can Help

Red Flag Alert captures real-time business information using cloud-based intelligence software to deliver a detailed fiscal health rating for every company in the UK. Our unique financial scoring system predicts insolvency and mitigates risk, powered by an algorithm that draws insight from billions of data points.

Manage Risk

Bad debt written off by UK businesses every year totals £4bn. We help our clients to spot financial risk, set credit limits and take action before the situation escalates.

Monitor Status

Our intelligent scoring system groups companies into one of seven categories: from Gold (very low risk) to 3 Red Flags (on the brink of insolvency).

 

Swift Onboarding

With valuable in-depth insights at your fingertips you can make reliable risk assessments quickly and easily, allowing you to avoid unsuitable prospects and set credit terms accordingly.

To find out how Red Flag Alert can protect your business against financial risk, please get in touch with Richard West at richard.west@redflagalert.com or on 0344 412 6699.

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Mark Halstead Mark Halstead Partner

Mark's experience is big data analytics, financial services and building businesses provides Red Flag Alert with strategic direction.