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Tough year ahead for UK converters, says analyst

January 16, 2008

Tough year ahead for UK converters, says analyst
According to business analyst Plimsoll Publishing, UK label converters face tough trading conditions. “Almost every sector of British business stands at a crossroads as it prepares for the coming 12 months,” says Senior Analyst David Pattison. “With uncertainty in the economy, some will want to sit tight and do nothing radical. Others will need to cut costs quickly to weather the possible storm. But some who have built up large cash reserves will be looking at this period of difficulty to make acquisitions at a bargain price.”
He adds that, as predicted, label growth was minimal in 2007 due mainly to increased competition in the market: “In fact, 47 percent of companies actually saw their sales decline. It’s important, however, not to confuse sales with profit. Some smaller firms, with a turnover of £3 million ($6.1 million) or less, lost out on sales but still enjoyed healthy margins. They did so by keeping their costs under control and by carving out a specialist area in the market. These firms have managed to do very nicely for themselves by trading in niche products. This trend has been an important factor since 2006, and I see no reason why it shouldn’t continue.”
Pattison says companies should aim for a growth target of at least 2.1 percent, but the more imaginative ones should expect to beat this. Pressure on sales will force many companies to cut costs, which usually means job losses. He advises that cost reduction programs should form part of a planned long term strategy, rather than a panic decision. “But don’t be too hasty; 2007 was not a bad year overall, with margins averaging 3.4 percent. Indeed, for some exceptional companies, that percentage was in the mid teens — in some cases for the second year in a row.”