As the UK and global economies show signs of a sustainable recovery, wide-format PSP chiefs came together to debate this very question at the 2014 Widthwise round table.
Get a cuppa! If ever you’re going to have time to sit down and read a four page feature on the state of the large-format digital print sector it’s now, according to those PSP bosses that met recently for the annual Image Reports’ Widthwise round table debate on whether the sector is set for growth. When, somewhat into the conversation, the question of overcapacity reared its head the overall message was that it wasn’t a problem - apart from in December. But if that’s all we have to worry about we’re - still - onto a good thing. So are we?
The upshot of the 2014 Widthwise survey – which at the start of the year collected data from 343 UK and Ireland-based companies involved in digital inkjet large-format print production – was that businesses in this now maturing sector still have scope to grow, but that they need to be canny about it. 65% said they expected wide-format to grow as a ratio of their total company turnover in the next two years, but while a large proportion (40%) had seen large-format profits increase last year, a not insignificant amount (18%) said they had fallen. And while a third of respondents (34%) said they expected margins to increase this year, almost a quarter (23%) didn’t.
When it comes to turnover/margin performance many factors are at play and need to be factored into the equation on how the sector is doing as a whole. Take Cestrian, where 98% of total turnover comes from wide-format and where MD Phill Reynolds says “2013 delivered the best margins we’ve ever had”. But he expects margins to have proved “a bit tighter in 2014 because of the investments we’re making, and overall company turnover will drop this year due to consolidation as we set out our stall for the future.”
He thinks large-format production will stay at around 98% of total turnover, but getting the most profit out of that means making the most of the “investment in the phenomenal kit we’ve bought in the last two years and the investment and time we’ve put into software development. We have six developers working on W2P that handles the process from booking in to kicking out. 40% of our turnover of work goes through that - we don’t touch it - which will really impact on margin, but it’s not a quick fix - and you have to educate clients to make it pay.”
Richard Clark, MD of vehicle wrap specialist Raccoon Graphics, jumps on that ‘efficiencies’ messaging. “For the last ten years we’ve been looking for ways to grow. 50% of our turnover is now large-format print production and I think that over the next few years it will actually become a smaller part of turnover as we continue to diversify. But it is still the heart of the business - we now rent out bespoke branded vehicles etc. and that actually helps drive large-format print. That kind of move obviously takes investment. It means we’ve had to look at how we can make more money, and how we make small orders more profitable - and that’s through efficiencies. We installed Switch a couple of years ago to streamline processes and that’s really helped.”
He adds: “As a sector we need to lose the price per square metre mentality to grow margin, and find ways of spreading risk and managing seasonality,” a point echoed by the others around the table.
For the likes of Matt Guise, one of the new MBO team at Macro Art, this year has all been about restructuring for growth. Wide-format print (including things like installation services) accounts for around 98% of its turnover, which rose 12-13% in 2013 and is expected to do so again this year. Overall profit is expected to be up too and he’s hoping 2015 will see a bigger jump than in 2014. “We expect the business to be more profitable going forward due to the massive restructuring,” says Guise. “Macro Art was a trade printer really and when we started turning over stones we found issues so we’ve really changed the company's focus.”
Significant management change at Clicks Digital Solutions is also impacting on its growth, especially in the wide-format sector, which is a relatively new focus for the company.
Director Graham Leggett says that its small-format business will have grown about 20% in 2014, while large-format will have only climbed 10%, but it’s the latter where he expects real future development. “Our new - and the company’s first - financial director is really doing a clean-up job and he’s had an immediate effect on margins across the business. We’ve got a new management focus on large-format and new branding there, and we expect to grow that part of the business by 30% in 2015,” he says.
Another company that has become more involved in the wide-format space and sees it as a growing part of its business is Signbox. MD Mark Bartlett says: “We’re in large-format by default really because of our involvement with architectural sign making really. As that market started demanding large environmental graphics as well as a sign fit-out we first subcontracted it but in 2008 bought a Durst to bring it in-house and large-format print production now accounts for about 45% of our business. We’re still experimenting to find out what the kit can do, but we expect large-format will certainly become a bigger part of what we do. We have a pipeline of work to Christmas, driven by London fit-outs, which is great news and has never happened for us before.”
But Bartlett cautions: “Although our turnover rose 10-15% in 2014 margins are tighter because in the architectural market timelines can be long and we were tendering when times were still tough. And little sign shops have no idea of sensible costing and quote ridiculously low. We now turn away with low margin.”
Antony Rider, commercial director at Rocket however, argues that in his business large-format margins are improving faster than elsewhere though he admits “everyone wants to pay bottom price for top quality”. Like others at the round table, he says he too now turns away low margin work. Which must mean they can.
“There’s still loads of growth in plenty of markets to not have to sell cheap,” stresses Reynolds, “even in established large-format print sectors like retail, outdoor and exhibition/events which are our core sectors.”
That’s a message that came through the Widthwise survey data. Those markets with the biggest saturation of PSP involvement (general flags/banners/signage, posters and exhibition/display graphics) also came top of the lists of fastest growing sectors, and areas where other large-format companies are looking to become involved in the next two years. Some niche markets, perhaps considered ripe for development and potentially high profit providers, actually saw a decline in the cumber of PSPs involved, eg. textile printing for homes/interiors.
“There’s no need to put yourself through the hassle of finding new niche markets for companies like ours,” adds Reynolds. “It’s about being clever. We make sure we are in markets that are all busy at different times so we’re on an even keel. Plus, we’ve found that providing new solutions to existing clients makes money and means that word of mouth gets around so we’ve actually been able to cut back on salespeople. It’s all about making sure you are in a position to have that ‘solutions’ conversation. Samsung told us it had £200,000 to spend on a project and we did £1m by upselling – and bringing in experts where we needed to.
“I’ve definitely seen a change in mentality. We had a stressed client and I got my team to knock up a ‘solution’ free. Because we’d made their life easier that one time they give us all their work now. Good business practice is no longer about making money immediately.”
For companies that are really in this business for the long haul, that change in strategic thinking and operational management is now at the fore. “Our strategy too is to take on a loss leader where necessary to net the bigger fish longer term,” says Bartlett, explaining that Signbox will continue to push into the field of integrated and interactive print via the use of NFC etc. “That’s where we can see the biggest margin,” he states. “For us too, it’s not about finding a new customer base but selling a higher margin solution to the one we have.”
And that’s also the case at Rocket. “We want to spread the risk, and find work to fill December,” says Rider. “To do that we’re looking at our kit and materials and doing what we can to get new capabilities in front of clients by making sure we’re more involved in the right conversations with the right people. We’ve always been quite quiet about what we do but now we’re raising our profile so we are seen by those people as a company worth talking to.”
At Macro Art the story is similar – stick to the customers you know and upsell to them. In this case the company has been focussing on selling textile print having invested heavily in dye-sub kit over recent years. “We have clients with budgets of £30,000 that spend £100,000 because they just don’t want hassle – especially in the events market. If you can talk to them about a solution that will take away their headaches, the work is there for the taking. And the more we deliver on that the more we’re becoming known for it, so it’s self perpetuating to some extent,” says Guise.
Both he and Rider are in the process of installing Caldera management information systems to not only create efficiencies and provide the data to see what work is really paying, but to help their image with clients. “Customers see the front and back end of the business and how you interact with them at each end impacts on how professional you’re considered,” Guide adds.
For Clicks Digital, its large-format growth strategy is about finding new customers, perhaps unsurprisingly given that it’s still new avenue for the company. Leggett said its LumeJet technology in particular is helping Clicks get through the door with architects, who’s longer lead times are a particular attraction.
Whether it's a case of finding new customers or upselling to existing ones, does the argument for diversification into areas like data analytics, versioning etc. hold much water? The question was put to the round table panel after Widthwise 2014 research showed such offerings have yet to really get off the starting blocks within the wide-format print community.
“The problem is, there’s still no product that enables you to do all you want to do in terms of W2P, versioning etc.,” says Reynolds. “We had to plough a lot of money and internal resources into getting a solution that worked how we wanted it to. About 40% of our turnover comes through the W2P front end now but it’s been a painful process getting there.”
In terms of versioning, the process is again seen as painful. “And our client base isn’t demanding it,” says Guise, with Leggett adding: “We actually have the systems to do it in place because we’ve been doing it for some time on the small-format front. But we’ve had no uptake of the service in wide-format though customers know we have the capability.”
“I don’t think you can say ‘we’ll do versioning and go and sell that service into the market’. It has to be demand led,” argues Bartlett. “There’s certainly scope to make money in easier ways,” agrees Guise, adding: “Sometimes diversification has to be about where the clients lead you. It is good to be proactive, but we need to also recognise the value of being reactive.”
With that comment the debate segued into comment on management within the sector’s PSPs. “Life as a PSP owner is nicer now,” says Reynolds, to many nods of assent. “I’ve noticed in the last 18-24 months that there’s been a real change – that people realise that it’s important for us in the sector to gather information and use it to rebrand and improve our profile. I think we’re not so guarded now – there’s more trust and proper professional relationships between companies.
“I agree,” says Guise. “There’s definitely been a shake out of the old school business managers. And we’re all making money and there’s room to grow for all of us so there’s no reason not to be supportive of each other.”
So what happens when it comes to many companies fishing in the same dwindling pool for staff? The Widthwise 2014 survey findings showed that with business growth on the horizon for many PSPs, almost half of the respondents planned to recruit in 2014/15 (71% of comps over £2m turnover). Most of those at the round table are doing likewise. The general upshot of the discussion was that no-one is interested in taking on serial company hoppers so all sorts of means are now being deployed to find new blood, with an onus on social media.
“And I think there’s a lot of cross training going on within companies which is good for the firms and their employees - staff can move up the pay scale and we get more flexible people,’ stresses Rider.
The wide-format market is synonymous with flexibility. Digital inkjet technology and the ongoing development of associated ancillaries and consumables certainly play a large part in that. But those investing in such products as the bedrock of their offering have also become much more flexible in approach. The outcome is a sector set for continued growth - though that might not necessarily be via some of the niche routes generally signposted as being the most attractive.
“Everybody around this table has enough work to grow, and not have to worry about exploring difficult and emerging markets,” ends Guise.