Analysis: equipment

This lack of investment seems to be a concern for the labelling and board industries in particular. EAMA chair Graham Hayes, also chairman of UK packaging machinery manufacturer Bradman Lake Group, says his company has found it harder to sell automated equipment to manufacturers in the UK than overseas, because domestic businesses are more reluctant to embrace new technology.

He says Bradman Lake mainly sells to large food manufacturers and there is “no doubt that their margins have been dramatically reduced over the past five years by the strength of supermarket purchasing”.
Hayes says he is seeing more examples where UK firms are finding it hard to compete against fully automated European competitors.

“Early last year we supplied a large line to a German frozen food company to automate the production of frozen fish products and we were also talking to a UK manufacturer,” he says. “We know that the German firm has used their investment to go after volume and is focusing on the UK firm’s business because they know they have not invested and cannot compete.”

Overcapacity
There is some doubt, though, that this trend extends across the entire labelling and board industries. John Monks, president of the British Printing Industries Federation’s Cartons group, says UK packaging printers have a very good record, in recent years, for adding new technology to their operations and investing in people.

Monks believes that companies in the UK have been more ready to move  forward into automated printing presses than their German counterparts – as tremendous numbers of old machines have been replaced with new ones over the past five years.

But Monks says this investment has also created excessive capacity that has hindered the UK’s performance. “The UK has suffered for many years from too much capacity, creating price wars and a self-perpetuating problem,” he says. “Lots of businesses closed down because of the rot caused by poor financial performance.”

Overcapacity has been a problem in the UK for some years, according to Robert Davison, chairman of Pro Carton. He says that Christmas seasonal activity and new launches tend to create a knock-on effect of excess capacity in the first half of the calendar year when order books are not as full.

“Every year there’s always a peak in the last quarter, which kind of accentuates overcapacity in the first part of the year,” he says.

Changing work practices in the industry have also had an impact on the capability of companies to actively invest in new machinery, and some companies now choose to only invest in modern automated equipment against secured orders.

Paul Thompson, product manager for packaging and label finishing systems at Heidelberg UK, says: “Never has the UK packaging industry had to compete so hard against imported cartons and packaging from countries with cheaper labour resources, materials and manufacturing bases.”

Room for improvement
Thompson says that levels of automation are still relatively low within the UK, with the exception of the top five or six carton producers.

“Some of this is due to run lengths, some due to lack of space in a factory and inevitably also some of it is down to cost,” he says.

Philippe Michel, Bobst’s market director for folding cartons in Northern Europe, says that while larger companies seem hesitant to invest and the UK market was quiet overall last year, there is now a “much bigger dynamic among smaller companies”. It is yet to be seen whether this will add even more capacity to the UK market.

Ultimately, the high standard of kit means that it may not need to be replaced for up to 15 years, so levels of investment will continue to fluctuate, as Davison explains: “It’s just a matter of where the company is in its cycle of replacement.”

Investment facts
- In 2006, German firms invested €380.6m in machinery that manufactures corrugated paper, paperboard and containers of paper and paperboard, more than double the UK’s €168.1m.*

- Investment levels were more even in the labelling markets, where UK firms spent €60.3m in 2006, compared with €76.7m in Germany.*

- More than 55% of label companies are considering a merger, acquisition or disposal strategy, according to a BPIF survey in the UK in November 2006.

- Despite 50 carton plant closures and the removal of 191,000 tonnes of capacity in the last five years, there are still repeated concerns about overcapacity.
* Source: European Commission

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