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PI 400 -- Financial Printing - It's Been a Bear of a Year

December 2001

When the ball dropped on Times Square at midnight on January 1, 2001, no one could have imagined how challenging this year was going to be for the printing industry.

Top 10 -- Financial Printers
1Bowne & Co.
New York
2R.R. Donnelley & Sons
3Merrill Corp.
St. Paul, MN
4Cunningham Graphics
Jersey City, NJ
5IKON Office Solutions
Malvern, PA
6Burrups Packard
7Applied Printing Technologies
Moonachie, NJ
8Henry Wurst Inc.
N. Kansas City, MO
9Scott Printing
New Providence, NJ
10MacNaughton Lithograph
Command Web
Secaucus, NJ
Sales figures are based on above printers'
self-reported total and market segment breakdowns.
While 2001 has been a difficult year for everyone in the graphic arts industry, the financial printing segment has been hit especially hard—first by the economic downturn and then by the September 11 terrorist attacks on the World Trade Center and the Pentagon.

"Without question, 2001 has been a challenging year for the financial printing industry," admits Paul Masterton, president for R.R. Donnelley Financial.

"On the capital markets side, this has been the most formidable year for financial printing since the stock market crash of 1987. This was true even prior to the tragedies of September 11, and the uncertainty that has followed," he adds.

Throughout the year, Donnelley Financial reported seeing the number of deals slow, with filings down 7 percent as compared to the prior year. That decline is comprised of a 68 percent reduction in IPOs, a 12 percent decline in mergers and acquisitions, and an 18 percent decrease in secondary deals. The situation was exacerbated by a simultaneous decline of deal flow in both Europe and Asia, according to Masterton.

While much of the year remained mired in a poor economy, the month of August seemed to be the beginning of the turnaround that everyone had anxiously awaited. Sadly, world events stepped in.

"The capital markets gained some momentum in August, when activity approached 2000 levels. September started out strong, but fell dramatically—42 percent from August—in the post-September 11 period as a result of the stock markets remaining closed for four days and the extreme market uncertainty that followed," states Masterton.

While the terrorist attacks had an enormous impact on R.R. Donnelley clients, the attacks also struck close to Donnelley Financial's home. Donnelley Financial has facilities in both Manhattan and in Arlington, VA.

"Given the proximity of our Manhattan service center to Ground Zero, the impact for us was significant. Our service center in Arlington, VA, was also evacuated and remaining closed for two days because of its proximity to the Pentagon. Donnelley's employees were safely evacuated, with no injuries reported."

Despite the attacks, Masterton contends that Donnelley Financial will remain in New York. "We are fully committed to a strong presence in New York City, and plan to reoccupy our 75 Park Place facility in Lower Manhattan as soon as possible. Additionally, we will be opening a service center at 520 Madison Avenue to serve our clients in Midtown Manhattan."

Despite an arduous year, R.R. Donnelley Financial is optimistic about 2002. Part of that hope stems from R.R. Donnelley's foresight, claims Masterton. Going into 2001, the printer realized that it was going to have to face the reality of a slowing economy. So the company developed a strong action plan.

"We knew that we would have to take definitive action to position ourselves for profitable future growth and ongoing development of new opportunities," he reports.

Nicknamed the "A-List", the action plan included acting, aligning and adapting to the new conditions in order to achieve success. It acted by reducing costs, minimizing discretionary spending and improving operational cost-efficiencies—including work force reductions.

The company also aligned its service models to better support client needs. "We significantly improved the quality, timeliness and consistency of our service delivery, including the creation of a full-service Capital Markets composition hub in our Silverlake facility in Charlotte, NC, as well as major expansions in the key markets of Atlanta and London."

Donnelley Financial also adapted and expanded its Customized Communications Solutions (CCS) business by creating a separate service platform tailored to the unique needs of customers in their target markets for mutual funds, banks, insurance, pharmaceutical and health care. By year end, CCS is expected to show a revenue growth of 10 percent to 12 percent over last year.

Additionally, they successfully introduced three new Web-based products—FactNet, E.Source and WebTraK. FactNET enables the fast and seamless creation of periodic updates and ongoing mutual fund fact sheets. E.Source is an online mechanism for regulatory and marketing documents that also collects consents in accordance with known compliance requirements. And WebTraK is an online system for inventory management, order tracking and fulfillment reporting.

Finally, Donnelley achieved continuous improvement by applying methodologies to develop customer service capabilities and provide for consistent, high-quality service. "These actions have all been designed to support our service delivery and on-time performance, while resulting in a lower-cost model that enables better utilization, generates higher productivity, improves controls and gains flexibility," says Masterton.

While the bad news this year seemed to outweigh the good, there was some good news to report. According to Masterton, Donnelley was able to complete a number of the year's biggest deals: the Kraft initial public offering, the second largest IPO in U.S. history; the Accenture IPO, in which Donnelley provided both financial printing and Website components; and the Prudential demutualization, reportedly the largest and most complex financial printing deal in history.

Donnelley has not been the only printer mired in the economic and terrorist quagmire. Henry Wurst Inc. President Michael Wurst describes 2001 as being dismal. "Heading into 2001, we certainly didn't expect a down year. On the other hand, we knew that with such a lengthy expansion behind us, it couldn't go on forever. We just couldn't predict that 2001 would be the year the bubble burst. The attacks on the World Trade Center and the Pentagon only further exacerbated the economic conditions," he adds. "The already tough environment got even tougher," says Wurst.

In an effort to ride out the current economic condition, Henry Wurst has also chosen to hunker down, conserve cash and try to differentiate itself. One way is by developing the delivery of services and information via the Internet for its customers.

Henry Wurst and Donnelley Financial aren't the only printers taking a hard look at ways to make their businesses more efficient.

"We have consolidated operations, closed some of our less efficient production facilities, and armed our composition system with enhancements that allow us to realize higher utilization and efficiencies," explains Duncan Varty, president of Bowne & Co.

However, while Bowne has taken steps to weather the current financial downturn, it is also looking for ways to expand its business.

"We are anticipating a greater demand in 2002 for our print-on-demand financial printing solutions and for our secure document delivery system. Therefore, we are considering exporting our highly successful print-on-demand financial print model to new markets, as well as our electronic delivery model," adds Varty.

Varty also remains hopeful as Bowne heads into the new year. "The markets will recover, however much more gradually than we thought. On the transaction side, we hear in the marketplace that there is pent up demand in the IPO and mergers and acquisitions markets."


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