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Brazilian Printing Industry

Index

o Amount of companies and job positions

o Production value

o Foreign trade

o Balance of trade

o Exports

o Imports

o Equipment and machinery imports and investments

o Productivity in the printing industry

o Business environment – Strengths and weaknesses

17.000

17.500

18.000

18.500

19.000

19.500

20.000

2006 2007 2008 2009

Prin/ng Companies Linear(Prin/ng Companies)

Source: MTE/RAIS.

Prepared by: ABIGRAF.

Amount of Companies in the Printing Industry

3%

3%

4%

Approximately 20 thousand companies

Source: MTE/RAIS.


SMALL-sized: from 10 to 19 employees MEDIUM-sized: from 20 to 249 employees BIG-sized: from 250 to 1,000 or more employees

MICRO-sized: up to 9 employees

Companies’ Size in the Printing Industry – Brazil

Micro 78.3%

Small 18.3%

Medium 2.9% Big 0.4%

In 2009

185.000

190.000

195.000

200.000

205.000

210.000

215.000

220.000

2006 2007 2008 2009 2010*

Printing Industry Workers Linear(Printing Industry Workers)

* Projection based on the Caged from July 2010.

Souce: MTE/RAIS.


Employment in the Printing Industry

2%

4% 1% 2.1%

Approximately 218 thousand jobs

2007 2008 2009

Industrial Production Value (in US$ Bi) (IBGE / BC) $12.98 $12.73 $11.47

Sales revenue (in US$ Bi) (IBGE / BC) $11.9 $11.7 $10.5

% percentual variation 1.0% 1.75% -1.63%

Participation in the Gross Domestic Product (GDP) (in %) 1.05% 0.81% 0.73%

Participation in the Transformation Industry GDP (in %) 5.91% 5.99% 5.50%

Production Value in the Brazilian Printing Industry

Source: IBGE and BANCO CENTRAL DO BRASIL. Prepared by: ABIGRAF.

Source: IBGE – PIA.


Segments’ Participation in the Industry

SEGMENTS

WEIGHT%

PACKAGING 41.6%

PUBLISHING 28.7%

PROMOTIONAL AND COMMERCIAL 11.7%

LABELS 5.3%

NOTEBOOKS 4.5%

PREPRESS, FINISHING AND PRINTING ON VARIOUS MATERIALS

3.8%

FORMS 3.2%

CARDS 0.9%

ENVELOPES 0.3%

TOTAL 100%

* Data until August 2010.

Source: SECEX/MDIC. Prepared by: ABIGRAF.

Year Exports Millions

Imports Millions

Trade balance Millions

2010* US$ 148.45 US$ 192.43 US$ -43.99

Brazilian Printing Industry Balance of Trade 2001 to 2010*

-500,000

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010*

Export Import Trade Balance

Mill

ions

US$

FO

B

Equipment and machinery imports value

DESCRIPTION VALUE (US$ / FOB) Millions

2004 2005 2006 2007 2008 2009 2010*

PRINTING 73.45 104.8 183.7 626.5 760.1 455.3 428.0

SHEET-FED OFFSET 7.29 14.5 27.9 47.0 45.2 67.6 23.4

FLEXOGRAPHY 10.38 7.1 14.0 331.2 395.9 141.2 120.2

WEB OFFSET 54.24 80.5 139.0 248.3 318.9 246.4 284.4

FINISHING 36.96 56.4 83.1 122.8 132.4 129.8 81.3

PREPRESS 13.96 22.5 31.6 8.8 9.4 6.7 5.3

ASSORTED 42.08 45.3 58.31 667.5 910.5 411.5 290.7

OTHER FORMS OF PRINTING 25.98 53.6 62.2 4.6 0 0 0.0

TOTAL 192.4 282.8 419.0 1,430 1,813 1,003 805.3

Percentual variation % 47.0% 48.2% 241.3% 26.7% -44.6% 38.2%**

Source: SECEX/MDIC. Prepared by: ABIGRAF. *Data until July 2010.

Investments in the Printing Industry

Source: Study on the Brazilian Printing Industry in 2009 – ABIGRAF.

Machinery: Printing Equipment’s Age (sample of 1,200 companies of the industry)

Prin%ng equipment

Type 2008 Up to 2 years

From 3 to 5 years

From 6 to 10 years

Over 10 years

Sheet-‐fed offset 34,701 10.3% 16.5% 29.9% 43.3% Web offset 3,141 7.5% 19.0% 24.7% 48.8% Flexography 6,244 17.4% 37.6% 27.6% 17.4% Sheet-‐fed screen prin/ng 2,518 10.4% 30.2% 45.6% 13.8% Roll-‐to-‐roll screen prin/ng 564 41.7% 8.3% 16.7% 33.3% Gravure 232 15.8% 0.0% 42.1% 42.1% Typography 10,646 0.3% 6.0% 15.6% 78.1% Pad prin/ng 45 16.7% 66.7% 0.0% 16.7% Hot stamping (roll-‐to-‐roll) 564 23.0% 35.1% 24.3% 17.6% Hot stamping (sheet-‐fed) 1,241 7.5% 32.5% 22.5% 37.5% LeSerpress (web) 93 7.7% 46.2% 23.1% 23.1% LeSerpress (sheet-‐fed) 15 0.0% 100.0% 0.0% 0.0%

Thermotransfer 506 24.3% 64.9% 10.8% 0.0%

Digital prin/ng 8,119 51.6% 36.4% 10.6% 1.2%

PloSer for signs 849 52.2% 30.4% 15.2% 2.2%

Packaging conversion 236 19.0% 19.0% 0.0% 61.9% Others 1,499 30.7% 25.0% 17.0% 27.4%

Total 71,213 15.4% 20.8% 24.7% 39.1% Publishing 31,621 11.8% 26..0% 36.6% 25.6% Promo/onal 46,785 12.6% 23.2% 32.5% 31.7% Packaging 13,523 10.9% 24.5% 30.9% 33.7%

Finishing total 91,929 12.1% 24.4% 33.7% 29.9%

Equipment Acquired in the Last 3 Years (sample of 1,200 companies of the industry)

Equipment type 2006 2007 2008 Prepress 492 497 1,154 Sheet-fed offset printing 2,010 2,194 3,442 Web offset printing 530 341 933 Engraving on metal 4 0 6 Broadband flexographic printing 185 358 771 Narrow-band flexographic printing 533 642 1,127 Screen printing 263 307 953 Gravure printing 0 0 25 Color digital printing 667 512 2,265 Black-and-white digital printing 338 115 307 Plotter for signs 16 20 288 Other types of printing 150 419 1,019 Packaging conversion 0 6 26 Finishing 7,667 8,178 11,437

Machinery total 12,855 13,589 23,753 Variation - 5.7% 74.8%

Source: Study on the Brazilian Printing Industry in 2009 – ABIGRAF.

Productivity = Average added value per employee in the year – in the companies with over 30 employees (in thousand US$/year)

ADDED VALUE 2003 2004 2005 2006 2007 2008

AV / EMPLOYEE 24.0 28.4 35.8 41.4 42.8 48.8

Nominal values converted according to the inflation index IGP-M and the average dollar value in the year. Source: Annual Industrial Production – PIA/IBGE, BANCO CENTRAL DO BRASIL. Prepared by: ABIGRAF.

AV per EMPLOYEE

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

2003 2004 2005 2006 2007 2008

AV/EMPLOYEE

Domestic Context – Strengths and Weaknesses

Domestic Context – Strengths

Migratory flow stabilization The workforce migration to urban areas in Brazil took place mainly in the 1970s and 1980s. Although issues such as poverty and lack of infrastructure are still worrying, they would be severely worse if this movement continued.

Investors’ interests in Brazil The size of the market and its growth above the world average lead to gains and economies of scale, fostering national and foreign investors’ interests in investing in various industries.

Creativity and flexibility Brazilians’ creativity and their ability to adapt to different conditions have been acknowledged, yet lack some guidance towards innovations for the market.

Increasingly strong domestic market

Strong domestic market, with and increase in families’ purchasing power, changing the income distribution (social class A: from 2% of the population in 2008 to 3.6% in 2018; B, from 5.4% to 9.4%; C, from 32% to 50%; D and E, from 61% to 37%).

Diversified risk Very diversified foreign trade. Productive and organized agricultural industry

World’s largest food exporter.

Water, land and energy Having elements that are now rare in many countries (water and land), various power sources and independence in terms of oil imports. China wants to buy land in the Center West; they may even increase the production, but it is known that they have very little interest in adding value to Brazil.

Political, economical and financial stability

Political and economical stability, inflation under control, a capital market that is well structured and regulated, a well controlled financial system with low exposure to risks and lacking credit and real estate bubbles are assets which the recent crisis has made even more valuable.

Institutional ripening of workers’ entities

Ripened workers’ entities and an already-established communication channel with the government, facilitating the dissemination of industrial policies initiatives, which however still need to be advanced.

Diversified power sources The country is not vulnerable regarding the global need to realize this diversification.

Professional management of pension funds

Brazilian pension funds are important investors, able to stimulate technological advancements and international competitiveness in whole industries, as the one that took place concerning aviculture-based food.

Source: MARRRONE, Patricia ; “Novas Diretrizes para a Política Industrial Brasileira; Digesto Econômico – May 2010 – YEAR LXV – Nº 458

Domestic Context – Strengths

Domestic Context – Weaknesses

Custo Brasil It is a widely-known serious issue and the many discussions around it contrast with the lack of solutions for the problem.

Strong industrial concentration in the intermediate goods industry

Some intermediate goods, from oligopolized industries, are more expensive in Brazil than in other countries: iron and steel products, gas, and paper, among others. This affects the competitiveness of every productive chain using them.

Too few qualified workers and too many unprepared ones

Another widely-known issue, and yet one that lingers despite the advancements in education.

Idle youth Youth’s idleness is high and particularly serious, due to behavior deviations to which it usually leads. Over 1.2 million young people between the ages of 18 and 24 are idle in Brazil; according to IBGE, they do not study, work, nor help in the domestic chores, but claim they are looking for a job. Many spend the night using a computer and wake up late (according to Tosta, 2009).

Aging population This leads to high social security costs, worsening taxes and Custo Brasil and damaging public sector investments. The population is aging quickly: in 1980, 7% of the inhabitants of Brazil were over 65; in 2010, 10%. In the same period, there was a 20% increase in the share of the population that has a low educational level. This has a negative effect on the international competitiveness of the Brazilian economy, especially in this industry (according to Arbache, 2010).

Regional inequality Piauí, Maranhão and Alagoas have the worst poverty indexes, reflected in indexes such as the HDI. Their worst problems are related to their frailties in terms of economy, dwelling, sanitation, and education.

Low investment and savings rates They hinder a quicker and sustainable growth without so much external dependence. (Industrial) Companies’ irregular fiscal situation

Endangers the country’s access to fundings and other industrial policy instruments, such as the ones related to innovations.

Exchange: cumulative effect of the rate in relation to various currencies

While real has remained overvalued in relation to dollar, other countries competing with Brazil have kept their currencies undervalued, especially China.

Capital cost Remains high, being important to highlight the basic interest rate and the “bank spread”.


Domestic Context – Weaknesses

Labor issues Social measures readjustment levels in labor disputes follow union interests, but not the short and medium term interests of workers and neither those of the companies, especially the small and medium ones. It increases workers’ turnover, since when there is too much pressure organizations substitute the most expensive workers for cheaper ones, thus increasing hiring and training costs, as well as having a negative impact on productivity. Big companies substitute men for machines, causing unemployment, and multinational organizations transfer production lines to other countries.

Deindustrialization Parts locally produced by imported groups in the metal-mechanical and auto parts industries are substituted.

Intermediate technological stage Brazil is in an intermediate stage regarding technological development and lacks the spreading of innovations in various industries.

Innovation system is still unsatisfactory

Fostering in this area takes place via complex and almost inaccessible redundancies; businesspeople are unaware of fundings and there is little connection between organizations and universities.

Trade policy Itamaraty’s agenda privileges “trade agreements” with countries in which there is a geopolitical interest, but that are overall of little commercial interest, presenting risks or even damages for the national industry by being favored.

BNDES action Favors mainly large economic groups, even in merger operations, widening industrial concentration. Small and medium companies’ access to resources is still very limited, despite efforts with the BNDES card.


Domestic Context – Weaknesses – Credit Cost and Low Savings Rates

Source: Doing Business 2010 - Brazil

Domestic Context – Weaknesses – Business Environment


Summary of Indicators Brazil La%n America & Caribbean

OECD Average

Star%ng a Business

Procedures (number) 16 9.5 5.7

Time (days) 120 61.7 13.0

Cost (% of income per capita) 6.9 36.4 4.7

Min. capital (% of income per capita) 0.0 2.9 15.5

Dealing with Construc%on Permits

Procedures (number) 18 16.7 15.1

Time (days) 411 225.0 157.0

Cost (% of income per capita) 50.6 210.8 56.1

Domestic Context – Weaknesses – Taxes



OECD Average

Paying Taxes

Payments (number per year) 10 33.2 12.8

Time (hours per year) 2600 385.2 194.1

Profit tax (%) 15,7 20.4 16.8

Labor tax and contribu/ons (%) 46,9 14.7 24.4

Other taxes (%) 6,6 13.2 3.3

Total tax rate (% profit) 69,2 48.3 44.5

The data above shows the tax that a medium-size company must pay or withhold in a given year, as well as measures of the administrative burden in paying taxes. These measures include the number of payments an entrepreneur must make; the number of hours spent preparing, filing, and paying; and the percentage of their profits they must pay in taxes.

Domestic Context – Weaknesses – Labor Cost



OECD Average

Employing Workers

Difficulty of hiring index (0-‐100) 78 34.4 26.5

Rigidity of hours index (0-‐100) 60 21.2 30.1

Difficulty of redundancy index (0-‐100) 0 24.1 22.6

Rigidity of employment index (0-‐100) 46 26.6 26.4

Redundancy costs (weeks of salary) 46 53.0 26.6

Domestic Context – Weaknesses – Foreign Trade Costs



OECD Average

Trading Across Borders Documents to export (number) 8 6.8 4.3

Time to export (days) 12 18.6 10.5

Cost to export (US$ per container) 1,540 1,243.6 1,089.7

Documents to import (number) 7 7.3 4.9

Time to import (days) 16 20.9 11.0

Cost to import (US$ per container) 1,440 1,481.0 1,145.9

Thank you!!!

Mário César M. de Camargo President

[email protected] (55) (11) 3164-3193