7 November 2024

Growth in output and orders ramped up in Q3 alongside boost in confidence - stronger growth forecast to hold in Q4

The pace of growth in output and orders picked up in Q3 as the UK's printing and printed packaging industry benefitted from a previously delayed boost in confidence materialising in the third quarter of 2024.

The BPIF has published its latest Printing Outlook report, the Q4 2024 edition shows that output, orders and confidence in Q3 displayed the most positive values for two years. The UK printing and printed packaging industry experienced a delayed recovery that had been expected to come through earlier in the year. A similar pace of growth is now expected to continue into Q4, though businesses will be required to make some adjustments when the Government's Budget adjustments impact.

VOLUME OF OUTPUT - Q3 IMPROVEMENT, POSITIVE OUTLOOK FOR Q4

The Q3 output balance of +14 was above the +10 in Q2. A balance of +15 is forecast for Q4.

Industry competitiveness remains ferocious - companies pricing below cost (or the perception that some are doing so) remains the top ranked business concern, closely followed by sales levels, and access to labour. Whilst some other concerns are further down the rankings, it is noticeable how the share has grown most recently for taxation, business rates and red tape.

TOP BUSINESS CONCERNS - % OF RESPONDENTS SELECTING

Whilst capacity utilisation has improved, it could still be better; constraints on capacity have also been building. In particular, a shortage of skilled employees has been identified as a significant issue. Our calculations suggest that capacity was restricted by just over 11% in October, up from 9% in July, around 6% in April, and 4% in January.

However, the reported profit distribution was healthier in Q3, cash flow is being managed effectively by most companies, and companies are specifically targeting improvements in operational effectiveness, sales management and cost control as a means to help maximise future profitability.

Sustainability features once again in this report, the industry appears to be continuing its improving path. More companies are involved in measuring, and minimising, their carbon footprint; and making strategic investments that will improve their sustainability credentials.

MEASURING EMISSIONS SCOPE - % OF RESPONDENTS

The BPIF Printing Outlook Q4 2024 report features sections on industry turnover, business concerns, costs, pay reviews, paper and board, and much more.

Kyle Jardine, BPIF Economist, said:

"The printing industry now appears to have moved through the confidence doldrums as the improvement, that was forecast for Q2, came through strongly in Q3. Some uncertainty still remains but Q4 expectations remain positive. The last 24 months have been characterised by lingering and extreme cost pressures, economic uncertainty and political instability. Now, inflation has fallen below target, and the UK economy is experiencing moderate economic growth - though there has still been some uncertainty related to the change of Government, and the wait for their first Budget. With the Budget revealed businesses will at least be ready to move on with some of that uncertainty behind; though they will likely find that process of moving on is more challenging as a result of changes made in the Budget."

Charles Jarrold, BPIF Chief Executive, said:

"After a very challenging 2023, and a slow start to this year, overall, it's encouraging to see this quarter's responses which show confidence strengthening, although it's also clear that business conditions are as challenging as ever - finding skilled people and dealing with intense competition stand out as key challenges.  While improved confidence usually bodes well for the future, the budget, which was made public just last week, is bound to have an impact on confidence too, with significant red tape and cost implications that are worrying businesses. Our message to government is that just when confidence has been rebounding, a new set of challenges are being introduced through the budget and other legislation, which carry the risk of setting us back."

Summary of key findings:

• The printing industry now appears to have moved through the confidence doldrums as the improvement, that was forecast for Q2, came through strongly in Q3. Some uncertainty still remains but Q4 expectations remain positive.
• Concerns that competitors are pricing below remains the top business concern for printing companies.
• Industry capacity utilisation improved to be concentrated in the 80-89% range in October.
• Since July 2022, a shortage of skilled employees has been the most significant constraint on capacity.
• More companies increased, than decreased, employment levels in Q3, intentions for Q4 are also positive, despite increased concerns over skill shortages.
• Average price levels had been declining for over a year, however average price levels increased, on balance, in Q3.
• A majority of respondents have been able to maintain stable cost levels. However, there is still some pressure in all cost areas; labour costs have continued to be the primary cost concern for companies in Q3.
• In October, labour costs (direct and indirect) remained, just, the largest cost component with a 32% share, on average, of total costs.
• Whilst a majority of printing companies have still been able to hold margins steady in Q3, they do remain under significant pressure as companies balance cost and pricing pressures.
• When it comes to company plans to increase profitability in the next twelve months, manging operations more effectively has surged up the priority ranking to become the primary area of focus for the first time.
• Export orders exceeded 5% of turnover for 20% of respondents in October, up from 12% in July. For these companies export orders performed better in Q3 than they had in Q2 - though export order levels have struggled over the last two years.
• UK consumption of printing papers and boards in Q2 2024 increased strongly compared with Q1 2024, and even more strongly in comparison to Q2 2023.
• The desire for companies to tackle sustainability issues, be visibly more accountable, and enhance their sustainability credentials continues to gain traction in the printing and printed packaging industry.
• In October 72% of respondents reported that they are measuring their carbon emissions.
• The most popular area of attention for sustainability related investments has changed since April, electric vehicles have now surged to top of the list.

Featured in Printing Outlook this quarter:

• Output and orders - last quarter and forecast for this quarter.
• Business confidence, concerns, and uncertainty levels.
• Turnover - annual and monthly turnover analysis and forecasts.
• Capacity - utilisation and constraints.
• Costs - paper & board, ink, labour, energy, and average cost structure.
• Trend data on employment, prices, costs, margins, profits, cash flow and productivity.
• Profitability benchmarks and plans for improvement.
• Pay Reviews - activity and average % changes.
• International trade - export orders and price trends.
• Sustainability - measuring, reducing, and investing.
• Consumables - paper consumption and printing ink data.
• Energy - sector update and comment.

The online trading trends survey was carried out during 1 October - 21 October 2024 and received responses from 101 companies employing 8,572 people with a combined turnover of £1.3 billion.