1. Economic and Print Market Trends and Outlooks Ronnie H. Davis, Ph.D. Chief Economist PIA/GATF

2. Print Market Trends and Outlooks A Look Back--The Print Rebound and Current Market Dynamics The Re-structuring of the Industry Outlook for 2005 and 2006 Profit Picture Global Threats and Opportunities Keys to Success

3. The Print Rebound of 2004

4. Print Rebound of 2004 by Market Segment

5. PIA/GATF’s Print Market Tracking Model Based on PIA/GATF surveys, the PIA/GATF Atlas model on printing plants by market segment and employee count, Ratios data on shipments per employee, adjustments for “survivor bias”, “size bias” and “member bias”. The most accurate tracking available--used by the Federal Reserve System

6. Final Numbers for 2004 Printing Industry 2004 Total Shipments (Increased by) $161.1 Billion ($4.4 Billion) Printing Plants (Decreased by) 42,997 (4,386 Web Plants) (1,538 Plants) Employment (Decreased by) 1.1 Million Employees (18,000 Employees)

7. Reasons for the Rebound Strong economic growth (over 4%) Advertising rebound Presidential election (a half-point kick) Stable postage rates

8. Print’s Restructuring Over last 4 years a decline of 4,800 plants and around 150,000 employees In 2001 and 2003 a decline of 2.4% in sales each year A loss of over 11,000 printing plants since 1994 Average size plant has increased from around 17 to over 25 employees (50% increase) Only larger plants are growing in number

9. Larger Plants Only Ones Growing in Size

10. Print’s Restructuring There are still almost 43,000 plants Over next 10 years projections are for further declines: –Low-a loss of 4,000-5,000 –Middle-loss of 6,000-8,000 –High-a loss of 8,000-10,000+

11. Print and the Economy Economy grew over 4% in 2004 and print grew 2.8% (70%) –2.8% is “real” print--printing prices declined by.2% in 2004 (PIA/GATF estimate for FRS) –Up until mid 90s grew as fast or faster –Still opportunity (3% of $160 billion is almost $5 B) –Some processes/segments growing stronger

12. US Economic Growth Continues Strong After a strong 2004 growth of over 4% the US economy is still growing strong. First Quarter 2005 the US Economy grew by 3.5%. Inflation is remaining in check at 3%. Unemployment is on the decline. Remainder of the year we forecast the economy growing by 3%.

13. First Quarter Update Another Strong Quarter Total Shipments Up 3.6% Ink-on-Paper Up 4.2% Toner Based Up 6.3% Ancillary Services Up only 1.8% (a reversal of ink-on-paper and ancillary services) The Economy 1 st Quarter 2005 Overall Economic Growth Up 3.8% Paper Prices Up over 3% Print Prices Up 0.3% “Real Print” Up 3.3%

14. Outlook for 2005 Stronger Growth In: - Direct Mail - Books - Packaging / Labels - Periodicals Another Strong Year Total ShipmentsUp 3% Ink-on Paper Up 2.5% Toner Based Up 4+% Ancillary Up 3+%

15. Printing Shipments From 2005 to 2003

16. A Five Year View of Print Markets (2005 – 2010) Assuming US economic growth of 3-3.5% per year over the next 5 years total printing shipments should grow around 2-3% per year or slightly less than the overall economy. These are “real” numbers in that the number for the economy and print markets has been adjusted for inflation.

17. Forecast For Average Annual Growth of Print Sales by Sector SectorAverage Annual Sales Change 2005-2010 Direct Marketing Printing3-3.5% Labels/Wrappers Printing2-3% Packaging2-3% Catalog Printing2-3% General Commercial/Quick Printing 2% Periodical/Magazine Printing2% Book Printing1-2% Directories Printing1% Business Forms Printing-3 to -4%

18. Question Mark for 2006 Postage Rates are going up Postage and print relationship: –Over 40% of $print through USPS –Past history shows “price elasticity” of mail at.50 and increasing –PIA/GATF estimates that for every 1% increase in postage there is a.175% decline in print volume

19. A Postage Increase in 2006 Much lower than anticipated (PIA/GATF led the postal reform effort) This could cause around a 1% decline in print volume over a 12 month period If the economy holds up and grows 3.5% or so in 2006, and if there is a surge of direct mail before the increase: –2006 printing shipments may edge up around 1.5-2% –2007 depends on economy and postage rates

20. Profit Picture A lagging recovery In the 90’s --3.5% for all printers and 12% for profit leaders Recession--dropped to 1% for all and 8% for profit leaders. A slow recovery but should see significant improvement this year

21. Profit Leaders vs. Profit Challengers

22. Global Threats and Opportunities US Printing industry still a “net exporter” Imports growing faster than exports Exports around 4%/Imports around 3% Growth of China printing industry--over $700B in 2003 Growth of global sourcing--almost 4/10 printers say their customers are looking at global print sources One in three US printers lost a job to a foreign competitor in 2003

23. Imports Growing Faster than Exports From 1998 to 2003

24. Global Threats and Opportunities Almost half of those that lost a job indicated it was lost to a Chinese printer China has over 92,000 printing plants and 71,000 copy shops From 2001-2003 China imported 2,400 sheetfed presses and 540 web presses Bottom-Line: Import share will grow but vast majority of will print will remain domestic

25. Keys to Success for Printers Have a well developed strategy Manufacturing efficiency Administrative efficiency Be a Learning Organization Share the Wealth Offer more ancillary services