Asian flexible packaging market – vibrant and colorful ... - Huhtamaki

Asian flexible packaging market – vibrant
and colorful but not without challenges !
Capital Markets Day
September 16, 2008
Suresh Gupta
The Asia growth story
Asia GDP at nominal rate
exceeds Eurozone GDP
in 2010…
… provides bulk 37%
volume purchasing
power at price parity.
Source: 2007 GDP – World Bank, 2008-10 Growth rate – EIU - Economist
GDP at Nominal Rate
Region
2007
USD ('000 Bn) %
2010
USD (Bn) %
Asia (Excl Japan) 10.6 19.4% 12.9 21.9%
Eurozone 12.2 22.4% 12.7 21.7%
United States 13.8 25.4% 14.4 24.5%
Rest 17.8 32.7% 18.7 31.9%
World 54.4 100.0% 58.7 100.0%
At Purchase Price Parity Rate
Region
2007
USD (Bn) %
2010
USD (Bn) %
Asia (Excl Japan) 20.4 33.7% 25.0 37.2%
Eurozone 10.4 17.1% 10.9 16.1%
United States 13.8 22.8% 14.4 21.5%
Rest 15.9 26.3% 17.0 25.3%
World 60.5 100.0% 67.3 100.0%
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The Asian growth story
Asia – seen as innovative and most attractive for investment.
- Fifth E&Y European Survey
“Five most innovative countries ranked
by voters were US, China, Germany,
Japan and India. These five countries
were ranked ahead of UK, France,
Finland and Sweden”.
“China and India voted as the most
attractive countries for investments”.
“Businesses are chasing growth through
Asian consumers’ growing spending power”.
The Asian consumption boom from rising
income levels
All figures in Mn Households
Source: NCAER
Example India:
• Addition of 239 million to
consuming class in 11 years
• Reduction in Aspirants and
Destitutes by 225 million
• 2007 retail consumers (rich
+ consuming) – 450 million
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Asia retail boom and modern retail growth
India example
• Developing Asia is seeing fast growth
in modern retail within a large and
growing retail market.
• Indian retail market
2006 – USD 300 bn
2010 – USD 427 bn
• Food, beverage & tobacco segment
dominates:
2006 – USD 195 bn
2010 – USD 256 bn
• Modern retail only USD 11 bn in
2006, growing rapidly to USD 35 bn
in 2010.
(Source: Technopak)
Why the change in retail?
Because people change!
“Traditional”
New
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Fast changing Asian retail landscape…
Thailand
Traditional New
Fast changing Asian retail landscape…
India
Traditional New
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Fast changing Asian retail landscape…
Asian retail market attractiveness
(Source: A. T. Kearney)
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The retail story and the power of packaging
“Packaging Packaging is the only handshake that
a product has with the consumer” consumer
The Asian growth story for flexibles
Per capita flexible packaging consumption
Rapid growth in consumer
purchasing power and
growing aspirations of the
Asian consumer who will
no longer be denied…
North America
Western Europe
Centr. & S. America
Easter Europe
Asia Pacific
M. East & Africa
Source: FPE
By region
By Region
By Region
By selected country
$0 $5 $10 $15 $20 $25 $30 $35
US
Japan
Germany
Australia
China
India
$0 $5 $10 $15 $20 $25 $30 $35 $40 $45
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…provides a great
opportunity as very low
per capita consumption
will inevitably increase
and drive flexible
packaging growth.
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Flexibles market growth driven by Asian
emerging economies
“Dynamic growth in food processing will make
the Asia-Pacific region the global leader
for flexible packaging by 2010.”
“…global demand will be underpinned by
continuing rapid economic growth in many
Asian markets, especially India and China
(where flexible packaging market growth
forecast 15-17% p.a.)”
“…trend from rigid to flexible packaging in
pursuit of lower costs”
World flexible packaging markets 2005 and 2010 forecast
Region 2005 2010 Avg. p.a. growth
EUR bn EUR bn 2005 to 2010
Europe 10.7 11.5 0.6
Asia Pacific 10.4 15.3 6.5
North America 11.7 14.0 4.1
Central & S. America 2.1 2.8 4.4
M. East & Africa 1.2 1.5 5.1
Total world 36.0 45.1 3.7
“…rapid population growth and expanding food-processing industries in many emerging
economies.”
“…huge volumes of food products in the developing world, that continue to be sold without any
packaging, represent an incalculable opportunity for flexible packaging over the long term.”
“…the markets within Indonesia and Thailand offer a wealth of opportunities for flexibles”
– Study author Paul Gaster
Source: PCI
The Asian growth story
Huhtamaki Asia Flexibles
Flexibles Global 2007 sales MEUR 512, of which Asia-Oceania represents
approximately one-third
Europe
Americas
Asia-Oceania
Vietnam
Oceania
Thailand
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India
7

Huhtamaki Asia Flexibles
Locations
Network of 2,310 employees and 7 plants, synergized in servicing leading
regional and global key accounts located within the region and abroad.
Huhtamaki Asia Flexibles
India
Existing site reconstructed –
to be operational by end 2008
Thane
Bangalaru
Delhi
Silvassa
Rudrapur
Hyderabad
Chennai
Green field – 2007
Kolkata
• Market leader focused on premium
segment
• 26% share of premium segment,
9.5% share of total market
• Competitors in premium market incl.
Uniflex, Positive packaging, Essel
Manufacturing
Technology center
Sales & service offices
Sales offices
Manufacturing
R&D center
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Huhtamaki Asia Flexibles
India
Products: flexibles, specialized pouches, labels and cartons
Customers:
Huhtamaki Asia Flexibles
Thailand
• Market share: 10.4% (market leader in food
packaging – focus on packaged food exporters)
• Number 3 in total market
• Main competition: Alcan, Fuji Seal, Thai Offset,
Daiichi
Greenfield site – commercial July’08
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Huhtamaki Asia Flexibles
Thailand
Products: flexible packaging
Customers:
Huhtamaki Asia Flexibles
Vietnam
• 5% share of total market (nr. 5)
• Focused on multinational customers e.g. Nestle,
P&G, Cadbury, Bayer – one of two leaders in this
segment
• Total market leader – Tan Tian (12.5% market share)
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Huhtamaki Asia Flexibles
Vietnam
Products:
Customers:
Huhtamaki Asia Flexibles
World class technology and skill base
Certifications – ISO 9001, HACCP, GMP, BRC-IoP
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Huhtamaki global flexible locations and
technology centers
Exports from Asia
INDIA - SERVICING OVER 103 CUSTOMERS, IN 42 COUNTRIES ACROSS 6 CONTINENTS
VIETNAM – CURRENTLY EXPORTS TO AUSTRALIA, NEW ZEALAND, INDONESIA AND SOUTH AFRICA
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Asian flexible packaging market
Challenges
Raw material prices: surge driven by crude oil – petrochemical chain inflation
Pricing:
• Very few relevant raw material suppliers e.g. in polymer resins.
• Asian flexible packaging supplier industry – highly fragmented and by nature
price aggressive – going for volumes. Depreciation not recognized as a cost.
Finance cost not treated as important. Easy finance available – interest is
“payable when able”.
• Customers – dominated by powerful large companies – wield buying power.
• Pressure from buyers of flexible packaging on price not met with sufficient
resistance… and, Asian buyers are hardest, most ruthless bargainers…
• Result = the Asian flexibles market
most price competitive – serious issues
in recovery of full impact of raw material Flexibles supplier industry
prices from customers.
Asian flexible packaging market
Challenges (cont.)
Inflation: developing Asia recently hit by high inflation. Official August figures:
• India - 13%
• Thailand - 9.5%
• Vietnam - 27% (also, battling a currency crisis which hit end of May)
Attrition rates:
• High growth creates severe shortage of skilled people. Attrition rate in India and
Thailand rises to over 20% in manufacturing sector and in Vietnam to over 30%.
Infrastructure:
• Infrastructure capacity lagging far behind industry and consumer demand
growth – particularly India.
• Power crisis in India as supply falls short of growing demand.
• Inefficient bureaucracy an impediment to efficiency. Political interference in
much needed reforms like labor laws – can make business life pretty onerous in
India and Vietnam.
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The “prescription”
• Sweat assets in place – maximize capacity utilization
• Bring down operating working capital days
• Continue to drive sales growth
– Invest in advanced technological capability and capacity
– Stepwise program based on first sweating assets in place
• Innovation
– Drive Asia NASP program (New Applications, New Structures, New
Processes and Products)
– Current rate 24% of annual sales
• Drive quality and service excellence – maintain lead over competition
The “prescription” (cont.)
• Drive business excellence program for cost out
– Second wave of six sigma being rolled out
– New ERP in India and ERP initiatives in Thailand and Vietnam
– NASP being used for improving material efficiency
• Control all expenses despite high inflation
– Reduce as percent to sales
– Current percentage below 2007
• Complete sales price increase implementation
• Improve HR initiatives to control attrition and improve team capability
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Success stories
Cadbury relationship strong through innovation
• Cadbury needed premium differentiated packaging
for chocolate for children.
• Huhtamaki developed a uniquely attractive
holographic enhanced high barrier laminate.
• Solution phase 2: added “glow in dark” to the
package.
• New Cadbury relationship with Huhtamaki
Vietnam: appointed in Aug’08 as global supplier
for Cadbury TNCC product range – start 2009.
The Panadol counterfeit issue
• Panadol is a life saving OTC drug for Nigerians.
However, over 50% of “Panadol” was found
counterfeit.
• Huhtamaki developed first in the world a unique
anti-counterfeit hologram to protect each line of
tablets in Panadol strip pack.
• Solution phase 2: hologram to protect each tablet
separately. Commercial supplies Q4’2008. Dupont Diamond Award
for Technical Excellence
Success stories (cont.)
Team work in Huhtamaki Flexibles Global drives new development of retort pet food
packaging for Mars Thailand factory for export to Japan. Commercial 2007.
Christian Fenn-Barrabass
Ronsberg, Germany
Sawitree Buranapaiboon
Huhtamaki Thailand
Carlo Alberto Zaggia
Global Innovation Director
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Ashish Pradhan
Technical Director, India
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Summary
• Asia Flexibles market represents a clear growth opportunity
• Huhtamaki is well positioned for growth in Asia
• However, real challenges in the market must be overcome – for which
the action plan is clear
Thank you for your attention!
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