National Flexible - Twigg´s Times
With a wealth of experience in the packaging industry at the most senior levels, Barry Twigg - National Flexible´s major shareholder and CEO – shares his thoughts and ideas about the latest trends.
STRANGE BUT TRUE (CONTINUED)
Due to the above outages we now seem to be in the midst of a fully blown supply crisis for films. Throughout most of last week we have been notified of changes in both prices and film availability from most of the larger OPP film manufacturers. Two have informed us that their production capacity is now ‘full’ and that July would be their earliest delivery date for new orders. Meanwhile two other manufacturers were willing to take orders for May/June deliveries, but are not prepared to quote prices. In addition, PE prices for May/June delivery are projected to be a minimum of £200 per tonne above current levels. In our opinion (expressed many times) this is a ‘false market’ created by the closure of production facilities by the major polymer suppliers as the table above demonstrates. Nevertheless, we are where we are!
At the risk of being sued,
Film Prices- strange but true
Here in Biloxi down on the Mississippi Delta there are more casinos per head of population than anywhere else in the world and there is a choice of 9 casinos with a golf course attached.
It felt strange to find all these Gamblers congregating in one small town, but not half as strange as the current supply situation in the OPP and PE Packaging Film Market.
Whilst we warned in January that there was talk of prices increasing, and confirmed in February that this would probably be the case, we did not anticipate the chaotic situation which is currently forecast by film suppliers.
Whistleblowers Wanted – Film Prices, More M&A Activity
I am away for a few weeks exploring the Mighty Mississippi River but before departure I felt it worth revisiting three ‘issues’ covered in the recent post.
Whistle Blowers Wanted
Firstly, the search by Christine Tacon the Groceries Code Adjudicator for more whistle blowers (suppliers) to come forward and dish the dirt on the bullying tactics and the mistreatment they have received from the major food retailers, particularly the supermarkets. Ms Tacon told a committee of Peers in the House of Lords last week that this lack of complaints from supermarket suppliers was solely due to their fear of retaliation by the supermarkets. This she said had created a ‘Code of Silence’ from suppliers enabling the major retailers to continue with their unscrupulous behavior. (Her words, not mine). The fact that she produced no evidence to support these allegations seems to have been ignored.
Now according to the Grocery Code Adjudicator (GCA) annual report there are over 10,000 suppliers to the top 10 major food retailers in the UK. Since the CGA was formed in June 2013 presumably these 10,000 suppliers have traded throughout with the 10 major retailers. So, we might ask, how many investigations has Ms Tacon and her 5 person team instigated since the GCA was formed.
Supplier Protection – Is It A Racket?
It’s good to be back particularly as the temperature has started to rise and hopefully the snow and ice are no more than a distant memory.
I noted there were some interesting developments in our industry during my absence, in particular that the Groceries Code Adjudicator is soon to be given even greater powers (and staff no doubt) to protect us suppliers from bullying by the big food retailers. These powers include the ability to levy fines on the UK supermarkets of up to 1% of their turnover. As current sales of the supermarkets are in the order of £24.9 billion this gives Christine Tacon, the Code Adjudicator, the facility to impose around £250 million in fines should she identify any rogue Supermarket ‘Breaking the Code‘. My first thought was how much of the ‘fine’ would go to the offended supplier? Unfortunately, based on the total inertia
demonstrated by Ms Tacon’s department since it was formed some two years ago there is unlikely to be monies coming to any disgruntled supplier any time soon.
In my view there is obviously a more serious side to this development
Home Thoughts from Abroad (Apologies to R Browning)
By the time you read this I will have left for sunnier climes and an extended break from the UK’s dreary Winter weather. However, before departing I felt (as is traditional) I should look back at some of the issues raised during 2014 and look forward to their development in the coming year.
As always, the area we considered most relevant in 2014 was
1. Film Prices
I often feel I am a lone voice when the cost of packaging film in the UK is raised and events of 2014 highlighted why I feel this way. In the first ¼ of 2014 the average price quoted for polypropylene polymer was €1405, at half year this price increased to €1500 and as of December it was just €1350. A fall on the year of around 5%. Agreed, some other polymers have fallen 10-15% dependent upon the tracker index chosen but these prices were charged over a period when oil prices have fallen 50% in 6 months!
What is it about the UK Flexibles industry which keeps us immune from falling film prices when we have falling polymer price.
Film Prices 2015 – Where are they heading?
We don’t think that film costs will be falling very far in 2015 and here’s why.
Everyone has read that the oil price has collapsed by more than 30% since June 2014 and that there is now a glut of oil around the world. We also know that all the flexible films we use are made primarily from oil. So the mystery is why have we not seen a collapse in the price of flexible films?
We seem to have exactly the same mystery when we go to the garage to fill up our cars. There has undoubtedly been some reduction in the cost of fuel, but it is miniscule when related to the reduction in the oil price. One of the explanations which has been proffered is that the 30% figure refers to Brent Crude and West Texas which are the benchmark for the highest quality premium oils and that the commodity “stuff” from which film polymers are produced, have not seen falls in prices of
Premier Foods ‘Blackmail’
What a load of nonsense is being talked about Premier Foods desire to have supplier support for marketing campaigns. This type of ‘Supplier Partnership’ contribution is common in the food industry and is a great way for both companies to benefit from increased sales.
Some companies achieve this by escalating rebates, thus the more you sell, the more you payback, others use the Premier Foods approach.
It’s not blackmail, its commercial sense to choose suppliers who want to work as long term partners and invest together in sales growth over others who choose not to provide such support. It’s called Partnership and at National Flexible we value our partnership with Premier very highly.
At their recent Supplier Conference we attended, Premier Foods were very open about their future plans and what opportunities there were for supply partnerships. Most companies would not be as candid or inclusive as they were with the information provided.
M & A Activity – All our yesterdays
It’s good to be back despite the climate change. Not a lot has happened on the film pricing front since I have been away (we will come to why later). But the M & A activity in the UK Flexibles market continues apace, with Coveris adding Learoyd to their Britton and Paragon purchases making them the largest USA convertor operating in the UK.
Here at National Flexible we are at a loss to understand the attraction of the UK converter market to these overseas companies, particularly the Americans. Whilst there is undoubtedly growth in sales demand in the flexible films sector, margins are generally tight and profitability is not exciting when compared with many other business sectors. In addition, there is a constant demand for new capital investment in hardware as new technology improves the quality of print at higher running speeds, with quicker changeovers and smaller runs.
I have no doubt
Coveris buys Learoyd – M & A Activity
I said in January and again in May that 2014 would be a busy year in Flexibles M & A activity.
Whilst we expected the foreign acquisition spree to continue we did not discount UK mergers. The year’s not over yet and there is obviously lots of cash available for corporate expansion. Obviously, the acquirers feel there is lots of profit to be made in packaging, we shall see!
One thing we can guarantee is that National Flexible will remain independently owned by its Management and Staff.
We would love you to share with us any thoughts you may have on the consolidation in the Flexibles market. Whilst there is still lots of choice available this reduces with each acquisition.
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Twigg’s Times – http://www.nationalflexible.co.uk/news/category/twigg-times/