Down but not out

10 July 2009



Symon Ross finds recession has brought a mixed bag of fortunes to the UK converting sector


While many British converting businesses have so far held up well in the recession, the sector has not been immune to the downturn. A year ago it was buoyant, as raw materials prices were coming down and, as far as Britain is concerned, a softening pound worked in favour of UK based manufacturers. When the latest banking crisis kicked in last autumn, however, conditions changed quickly, and commitments for new expenditure became less certain.

“In November/December time, when the bank crisis really came to fruition, I would say around 50 per cent of the projects that were approved for purchase were put on hold,” says Tim Self, of slitter rewinder manufacturer TS Converting Equipment. “It is only in the last month they’ve started to be released again. They weren’t released as quickly as we thought they would be and only about half of them have been released,” he adds.

He says new enquiries have now picked up, though it is mainly clients in niche sectors such as medical packaging that are confident enough to spend again.

Antony Cotton, of Focus Label Machinery, has seen similar mixed fortunes. “I have one or two customers who are busier than they’ve ever been and others who are wondering where the next order is coming from. Generally, self-adhesive labels - especially if it’s food related - those customers still tend to be quite busy. People still need food and, if anything, there have probably been more promotions on items in the last year,” he comments.

Both he and Tim Self believe purchasing of converting and packaging equipment will not increase substantially until bank lending conditions improve.

“The biggest single factor in capital machinery is the lack of commitment from banks to lend money for the purchase of capital goods, and that’s slowing everybody down,” says Tim Self. “Even a big organisation that funds it themselves, because of the general lack of liquidity out there, people have just held off making those decisions.

“Hopefully, if the banks start to sort themselves out - and there are some signs that they seem to be doing that - confidence will come back and people will start spending money again.”

Lesley Hide, from EFTA (the European Flexographic Technical Association), believes a strong weighting towards food and drink has kept that converting sub-sector relatively steady, with 70 per cent of flexo products used by retailers.

“Obviously, the high ticket products, people supporting that side of the business have seen a bit of a drop-off; and people on the corrugated side, who are producing transit packaging for the automotive industry, they have seen demand drop. But generally, particularly for companies involved in retail, they are doing okay,” she states.

“While the end of last year was quieter, enquiries for printing machinery are there. People are at least looking at making investments; it doesn’t mean they are making investments, but they are looking.”

She thinks firms that have gone to the wall have mostly been small players, but she believes the recession has encouraged bigger companies to look more thoroughly at their production processes to improve efficiency, reduce waste and become leaner.

“Really it’s about operating within a very tight supply chain given the amount of product that ultimately ends up in four supermarkets in the UK. The majority of food and drink is purchased through four or five outlets and they are very demanding,” she affirms.

Simon Thompson, of API Foils, which works with high end brands in the food, drink and tobacco industries, agrees that, while there is more competition for less work and pressure on prices, the market remains buoyant.

“There has been a considerable lag in orders coming through because customers have drawn down on stocks, but now there aren’t the buffer stocks they would previously have had. So order intake is looking stronger and sales of tobacco and drinks are staying strong because they generally hold up well in a recession,” he comments.

While demand is down for new cosmetics or entertainment products, they are still being released and require packaging. There is less evidence firms are investing more in packaging materials to convince customers they are getting better value, but he notes some clients are responding to market trends. For example, L’Oréal and Marks & Spencer are investing in compostable packaging to demonstrate their environmental credentials.

Diversifying their product offering will be crucial to converting companies in future, given the availability of second-hand equipment and lack of need for new capacity, agrees Antony Cotton. But he believes many firms will just be looking to tread water for now.

“I think it will remain challenging for the rest of this year. I think there will be a bit of a tester at the Labelexpo show in Brussels, in September, and I think that will be a bit of a gauge as to whether people are prepared to invest or not.”


TS Converting specialises in slitter rewinders and core cutters Focus Label Machinery's new Centraflex print station

TS Converting specialises in slitter rewinders and core cutters TS Converting specialises in slitter rewinders and core cutters
Focus Label Machinery's new Centraflex print station Focus Label Machinery's new Centraflex print station


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