Packaging News, April 2012
At first glance the outlook for the rigid plastics industry looks rosy. In a survey published by the British Plastics Federation in July last year, more than 60% of plastics companies predicted an increase in annual turnover and many of those businesses have since gone on to deliver on this prediction.
However, what’s also come to pass over the same period is their forecast that profits would remain flat as a result of crippling raw material price rises and fluctuating demand. So just how healthy is the rigid plastics sector at the moment and what opportunities and challenges loom large on the horizon?
It’s difficult to assess the true health of the rigid plastics industry as a whole. There are relatively few public companies so much of the financial information proffered forth is unverified or anecdotal. One public plastics group that does have to issue statements about its financial performance is RCP, which recently reported that revenue and profitability had increased significantly over the last six months. Despite this strong showing Ron Marsh, group chief executive of RPC, says things are not as easy at the moment.
“The industry has managed to pass raw material prices on to the customer but you’re getting more money tied up in working capital as a result of the cost of materials being higher. There’s always a lag factor because you don’t recover the cost of the raw materials until after a period, whether that’s three months, six months or longer. This has taken a toll on people’s financial performance in the sector.” Those companies that have performed well despite the raw material price hikes are the ones who have responded to consumer trends by delivering cutting edge packaging concepts.
In the rigid plastics world innovation is a tried and trusted formula for success, according to Nicholas Mockett, an M&A expert at Moorgate Capital. “The more innovative packaging companies do tend to be more likely to make profits. Of course there will be diminishing marginal returns at some point but unique intellectual property helps lock in business at better margins and customers often pay more for something novel which helps their product stand out on shelf or have a longer shelf life or be more consumer-friendly.”
That’s where groups like RPC and Linpac play to their strengths. Although Linpac’s vice-president of marketing innovation Jo Stephenson admits that the sector faces serious challenges she says that demand has remained stable and significant trends are emerging that are driving packaging design changes.
“For example, consumers are eating more cheap cuts, minced products and white meats instead of more expensive red meat joints in the protein sector,” says Stephenson. “This leads to changes in packaging demand trends in terms of different pack size standards, split packs for portion control and extended shelf life and new flexible packaging demands.”
Another continuing trend is the shift from heavier materials like glass to lightweight plastics. pi Global’s innovations director Steve Kelsey describes rigid plastics as the designer’s best friend because “it’s cheap enough as a material and from a design point of view it’s flexible enough to deliver an awful lot.” Then there are the sustainability benefits. “If your corporation’s target is to reduce the weight of the packaging you use the really easy way of doing it is switching from glass to plastic, which delivers big wins,” he adds.
As a result some plastics companies predict a bright future. “APPE is working on several major material conversion projects – not just from glass but from other materials too – and forsee that this trend will continue for the foreseeable future,” says Kinza Sutton, APPE marketing manager.
But don’t expect monumental changes to occur in the way that they have over the last few years, cautions RPC’s Marsh. “What we continue to have is progressive growth of a couple of percentage points per year moving into plastics from other materials.”
An exert from Packaging News , “Fortune favours bold innovators |Sector focus” by Simon Creasey, April 2012