Mitting's musings

April 2008 - Posts

• Euro falls could signal the perfect storm

  Yesterday saw the biggest fall in the Euro for four years bringing some much needed respite to Eurozone companies who have struggled under the upward pressure the rise of the Euro has placed on their cost base.   Weaknesses in the pound and the dollar due to falling interest rates as the central banks sought to increase liquidity in the financial markets by lowering the cost of borrowing, and the weakening domestic economies in the UK and the US, have pushed up the value of Euro's value reducing the costs of imports to Europe.   However, underlying the fall in the Euro are some concerning factors suggesting that the credit crunch is spilling over into Europe, which has, outside the financial sector, largely weathered the storm.   In the UK and the US there is a simple reason for the credit crunch and the prospect of recession: debt. We have binged on debt in every walk of life, spending on credit cards, buying hugely over-inflated homes by taking out more debt, running or being employed by companies that have fuelled their growth through debt.   The debt has now run out and all those who have borrowed are left with the financial equivalent of a hot potato, unable to refinance to reduce borrowing costs or borrow more to fuel further growth. Cue, the fall of the pound and, by association, the rise of the Euro; the fall of the cost of our exports and the rise of the cost of European exports. It is something of a double whammy for the Eurozone companies selling to the UK and beyond as the purchasing power of their customer declines as the cost of production goes up.     Yesterday’s dramatic falls were largely on the back of a series of business confidence surveys in France, Germany and Belgium that showed a downbeat outlook in those countries. Spain is suffering under a similar housing slowdown to the UK which added to the woes.   It is a sign that the Euro is not immune to the credit crunch as some had hoped. Even these countries that have not binged on debt have been dragged into the ring and will have to fight alongside us to recover.   With poor economic data continuing to come from Japan, investment bank Nomura reported a 153.9bn yen (£745m) quarterly loss this morning; the Shanghai stock exchange continuing to fall, it has lost 50% over the past few months; and now the Eurozone crisis in confidence, it is beginning to look like a perfect storm.   Posted Apr 25 2008, 11:24 AM by William Mitting with 1 comment(s)

• I still have faith in magazine printing!

  I find United Business Media chief executive David Levin’s negative outlook on the future of print both disappointing and encouraging. He states that marketing spend “is expected to be redistributed away from print and towards online media, events and data products” and refers to the “structural shift” away from print revenues.   Undoubtedly print is facing challenges from the internet and UBM’s decline in print revenues reflects that but it is almost as if Levin is leaving print to the wolves as UBM heads off to pursue more lucrative opportunities. Data is one such opportunity and UBM’s results reflect that with a 150% increase in profits.   Whilst it makes good business sense to move into these markets, I can’t help but feel a little disappointed by UBM’s attitude. If every managing director focused solely on making a quick buck rather than offering a service and remaining true to an industry for which they had passion every business in the world would just sell mortgages to people who can’t afford them.   UBM joins Reed Elsevier in the exodus from magazine printing and herein lies the opportunity and the source of my encouragement. I firmly and wholeheartedly believe that print has a future in the magazine market and that the internet is an opportunity rather than a threat. It is up to us in the publishing industry and printers to come up with innovative ways of growing print revenues. So as the likes UBM and Reed Elsevier move out of the market there is more room for us to operate and drive print through the decades.   Posted Apr 15 2008, 05:37 AM by William Mitting with no comments

• Crisis? What crisis?

  If you read the papers this morning you would be forgiven for thinking the world was falling apart around us. House prices are falling, inflation is rising as interest rates fall, interest rate falls have not led to cuts in bank lending rates etc etc…I am a potential first time buyer living in London. At the moment, I have no chance of buying even the smallest one bedroom flat anywhere in London. I feel like a printer. My costs are rising, my margins are falling as a consequence and my goal is being thwarted by ridiculous prices in the marketplace. The problem in the housing market is that too many people have stretched themselves to the limits with 100% mortgages at over five times their earnings while interest rates have been benign. These people are essentially bankrupting themselves albeit with the help of lenders. Compare that to the print industry where many companies have taken on too much debt to sell the wares too cheaply with no discernable margin. These people are essentially bankrupting themselves, albeit with the help of print buyers.Both markets need a correction. Both markets need prices to return to sensible levels that can sustain the market and not pass wealth outside the central supply chain and into the hands of third parties. So I want prices to fall because it is not a reflection of the weakness of the economy, nor will it be the cause of such weakness. On the contrary, the economy is stronger if young professionals are out buying consumables, whose disposable income is the target of marketing campaigns, and who do not have to spend every last penny servicing a mortgage that ultimately enriches the lender, not the vendor. Prices for printers and first time buyers need to return to sensible levels. Falling prices are not always bad news. If the price of paper fell would the print industry call it a crisis? Oil? Ink? Certainly there are concerns ahead and an economic slowdown, a brief recession (although all recessions begin as “brief”) may be on the cards, but as I argued last week, this time round, print will not bear the brunt. Posted Apr 11 2008, 12:25 PM by William Mitting with 1 comment(s)

• Optimism while Rome burns – are we mad?

  With the global banking sector in meltdown, you would forgive printers for a having negative outlook. However, the latest BPIF Directions survey released yesterday shows exactly the opposite with almost half of the respondents believing their spring profits will be better this year than last.   Are we kidding ourselves, blind to the realities of the current financial crisis, or is it possible that the current storm raging in the banking sector will not rain on the print industry?   Across the financial world the venerable have become the vulnerable. Indeed, the shockwaves have been felt outside the City and in many other industries. Printing has not escaped unscathed as the demise of Quebecor World stands witness.   The debt party is over and, as is all too often the case, the calm that follows the party has been quickly replaced with a severe hangover. But has print really thrived in the years of plenty that we have recently experienced? And if not will it suffer in the decline?   Over the past five years, while bankers have been buying up small islands on the back of their bonuses and Brown has been hailing the astonishing growth across the UK, the print industry did not join the dance, to use Chuck Prince, now former head of CitiGroup’s unfortunate analogy.   Margins have fallen dramatically; private equity investment, itself a product of the debt boom, has driven down prices and the bull market that thrived during the boom and saw the value of the FTSE 100 almost double since it bottomed out in 2003 has, if anything, closed off the possibility of a floatation to companies in the print industry, dominated by smaller players.   Alistair Darling has called for a return to “good old-fashioned banking” and the credit crunch may bear out his wish. Asset-backed lending, the most common form of finance for printers, is a classic example of old fashioned banking and more competition in this marketplace would benefit printers. It may be more expensive in the short run but an increase in regulation will probably be of ultimate benefit to the ABL industry.   In addition printers have not been as guilty as other industries on piling on the debt to fund a mirage of growth so will not find themselves short in the oncoming crisis. Quebecor excepted – its parent company thought it acceptable to load up $5bn of debt.   Indeed, it is a good thing for the industry as a whole that the debt pool dries up. Each printer can now compete on an even keel with private equity backed loss leaders unable to push prices lower and lower and debt weighing heavily on the bottom line.   There is no doubt that a prolonged recession would hurt the print industry as it would the rest of the UK. But the factors driving this recession, debt and overinvestment are not diseases plaguing in the industry today. Print has not drunk from the poisoned chalice; it is not unreasonable to suggest that it will not therefore be poisoned.   Posted Apr 04 2008, 11:44 AM by William Mitting with no comments