Output and orders sink in Q2 amidst Covid enforced crisis – but rebuilding is underway in Q3
The UK printing and printed packaging industry hit a record low in the second quarter of 2020. The Covid-19 outbreak hit at the end of Q1, but it is Q2 that has taken the brunt of the impact as both output and orders recorded their worst ever balances – in line with the forecasts provided in Q1. However, expectations for Q3 reveal some improvement, in comparison to Q2, is to come – but it is certainly not a dramatic return to pre-coronavirus normality.
The latest Printing Outlook report reveals that 15% of printers managed to increase their output levels in the second quarter of 2020. Fewer (11%) were able to hold output steady, whilst 74% were adversely affected by a decline in output. The resulting balance (the difference between the ups and the downs) was -59, a further drop from the -43 reported in Q1 and marginally below the Q2 forecast (-55). This is the worst quarterly report on record, undercutting the -51 recorded in Q1 2009 and the immediate aftermath of the financial crisis.
Now that we moving through Q3, printers are expecting activity levels to improve from the unprecedented lows of Q2. Output growth is forecast to increase for 36% of companies. A similar proportion (35%) predict that they will be able to hold output levels steady in Q3. On this occasion fewer (29%) expect output levels to fall. That leaves a forecasted balance of +7 for the volume of output in Q3. If realised, this will be a welcomed return to the positive zone – but as the comparisons are with an all time low in Q2 it remains far from a return to normality.
Comments coming through the survey continue to exhibit real diversity in how companies have been affected by and reacted to the ongoing Covid-19 crisis.
The government’s support schemes, particularly the Job Retention Scheme, have been key for many that have accessed them; and a real concern for those that are still waiting for their loan applications to be approved. Previously most comments referred to ‘survival mode’ cost control measures and adapting to new markets (PPE manufacture and display graphics) and business models. Many comments are now referring to the lingering uncertainty and the struggle to get sales and orders into the business. However, there have
also been some positive comments were clients’ sectors have picked up or where clients have been reshoring (brought production back from overseas).
Dealing with the economic impact of Covid-19 remains, by far, the most important business concern for businesses; it was selected by three-quarters (75%) of respondents. The top three concerns were, as last quarter, completed by the ‘survival of major customers’ (37%) and ‘late payment by customers’ (35%) – however both of these have picked up a smaller proportion of selections on this occasion.
The notable changes in the priorities are a decline in concern regarding the health and safety aspects of Covid-19 but an increase in concerns about ‘competitors pricing below cost’ (from 13% to 24%) and Brexit coming back on the radar (up from 6% last quarter to 27% on this occasion).
One respondent made a particularly poignant comment regarding their situation: ‘The biggest issue is that the predictability of business has disappeared. Everything that we have learnt, all the knowledge is now gone as retail trends, workload cycles and the security of business has been completely disrupted. Running your business on best guess is an uncomfortable place to be.’
The latest edition of Printing Outlook also features a section on the Covid-19 restart. The standout issue preventing full recovery from the Covid-19 enforced slowdown is simply insufficient demand levels to sustain business. A ‘lack of demand’ was by far the most commonly selected operational challenge – chosen by 70% of respondents.
The action businesses would most like to see government take is an extension of the Coronavirus Job Retention Scheme (CJRS); this was selected by 43% of respondents. However, 39% of respondents were not seeking any further measure to help deal with the financial challenges facing business.
Overall capacity utilisation was noticeably higher in July, in comparison with May. Whilst 2% of companies were in the less than 50% category in January, 51% of companies were operating at less than 50% capacity in May – in July this has fallen to 30%; still some way off ‘normal’ but an improvement nonetheless. The most common capacity level in July was 60 to 69%, with 24% of respondents.
Kyle Jardine, BPIF Economist, said: ‘In these most challenging times we are eagerly searching for signs of positivity and a pick up in business. Undeniably Q2 was the worst performing quarter ever, however the recovery is set to get underway in Q3. Expectations for output and orders are more positive, confidence getting ready to recover and capacity utilisation is improving.
‘The latest edition of Printing Outlook has added an analysis of some data from the Office for National Statistics. This data clearly shows how drastic the drop in industry turnover was in April; but it did improve slightly in May. June data isn’t yet available, but it is expected to continue to show some improvement.’
Charles Jarrold, BPIF chief executive, said: ‘Dealing with the economic impact of Covid-19 remains the stand out concern for the majority of printing companies; primarily in managing and attempting to operate through a period suffering from a sheer lack of demand. There are justified concerns about how companies will cope if the furlough scheme winds out before demand accelerates enough to contribute to the ramp up in business costs.
‘Responses to the survey make it clear just how undesirable the lingering uncertainty is, and how difficult it is to plan; not an ideal time for Brexit to get back in the mix. However, there is some solace in the fact that we are all in this together; government is listening, and we are communicating with government; and some companies will certainly be looking to benefit from clients reshoring back to the UK.’