Good afternoon, everybody. My name is David Haslam. I'm senior vice-president of operations for Southern Graphic Systems Canada.
I'll give you a brief introduction to what we are as a company, what we do, and how we fit into this.
SGS has 375 employees in Canada. We're deployed in the packaging graphics business. We don't work just for tobacco companies; it's about 25% of our business. SGS serves printers and consumer product companies, and we supply the graphic plates, tooling, file manipulation, photography, and branding. That is our business.
SGS has sales of $70 million a year in Canada and $350 million a year globally. In 2010 SGS Canada engraved 10,000 cylinders, which are the rotogravure cylinders used for actually printing most packaging, predominantly tobacco packaging. SGS is the recognized market leader in the gravure process. We engraved 75,000 cylinders in North America last year, which is probably three-quarters of the total of the North American market.
The rotogravure process is predominant in the tobacco packaging business globally because of the high quality, the difficulty of reproducing or copying its images, and the fact that in-line processes can be used with it, such as embosses, specialized ink, and security features that can be put into that print process to maintain the integrity of the packaging.
We have the broadest colour gamut in printing in the gravure process, and it is, as I alluded to earlier, the most difficult process to counterfeit and forge.
It is a capital-intensive, high-speed, high-volume business in manufacturing. We need our volumes to stay alive. The in-line capability to die cut, emboss, and enhance the packaging allows it to be as difficult as possible to reproduce.
On the execution of the proposed health warnings, there's an estimation that anywhere between 4,800 and 6,000 cylinders would need to be engraved for printing by the end of the year. I just told you that we did 10,000 in a year.
Our typical annual tobacco volume is about 2,500 cylinders. When we get the files for the new health warnings--we still don't have them yet--we have to build those files, we have to separate them, and we have to build graphics. We have to put all that together, build the layouts, and build everything before we can proceed to manufacturing cylinders, which can then go on to print.
With that, new printing layouts need to be built, new dies need to be formed, and new embosses need to be formed. We estimate that probably about 2,000 new cylinders would need to be purchased. Most cylinders can be repurposed--you can engrave a new design on the old one--but while there's this overlap period, there's going to be a demand for another 2,000 cylinders for that. That has a lead time as well.
All embossed tooling will change because of the position of the health warnings and the position of everything in there. All the embossed tooling will have to be changed, and you're saying we have six months.
On the proposed timeline of 180 days that's in the legislation, the health warnings need to be released to us. We haven't got them. We have draft copies, but we still don't have the final files. We can't even start work. We need to build the master layouts, and we can't do that until we have the final files. Then the health warning masters need to be stripped and implemented into every single layout and print layout available out there.
I talked about the new steel that needs to be ordered and the lead time that's going to come with that requirement. There will be new embossed tooling. Then we have to engrave all the cylinders. We engrave about 1,000 cylinders a month. If we take it in the middle, we have to engrave 5,500 in less than five months. That means abandoning every other customer we have. It's commercial suicide.
Then all the packaging has to be printed. Then it has to be packaged, and then it has to be distributed, so in reality, even if I walked out of here today with the final files, we would only have 120 days to execute what really will take me 360 days. The risk that poses to our business is that we cannot manage that volume of business within this timeline.
Business will leave Canada. People will work hard to be compliant, but business will leave Canada. Typically, when it leaves, it doesn't come back. Volume may go to competing processes, which then allows the risk of counterfeiting and copying. Then when you go to digital printing or offset printing, which you can do in any backyard shop, you're going to have a bigger risk of counterfeiting, which is counterproductive, I think, to the direction of the warnings.
It also impacts the future sustainability of the Canadian printers working in my sphere of packaging, because if they lose 20% of their business--nobody's running on more than 20% margins--it's going to impact sustainability of at least two companies in Quebec and three of my customers in Ontario.
There will be an impact on Canadian jobs. It won't be just within my organization; we will lose business, we will lose size, and therefore we will need fewer employees to do what we have with what is left, but it's also going to have an impact on our printer customers as well.
In closing, I'd just like to ask this. We were engaged in this process at the beginning and we were asked as the industry experts to give you an opinion. We gave you an opinion, we gave you a timeline, and to date you haven't listened. I'm here to appeal to you one more time and say that we need this time to keep this work in Canada and keep these jobs in Canada. Our debate is not with the efficacy of the warnings or how effective they are going to be or where they are going to be placed. We don't really care about that. Our goal is to make sure we maintain as many employees in Canada and maintain the business volume in Canada.
Thank you.