Europe recovers

Andy Thomas examines trends in the European label converting sector as the continent looks to leave the worst of the global recession behind it

As we approach the end of 2010, the Europe labels sector looks to be recovering well from the global recession. 

According to figures supplied by the European label association Finat, during the depth of last year’s crisis, demand for pressure sensitive label stocks plummeted by 5.3 percent compared to 2008, and by 8 percent compared to 2007. Both paper and filmic substrates suffered equally. 

But the last quarter of 2009 saw the beginnings of a significant recovery, with filmic roll demand growing by almost 7 percent and paper rolls by 3.7 percent, an overall PS growth rate of 4.5 percent. In Q1 2010, PS label demand hit 12.5 percent – a return to growth rates last seen in 2006-7, and Finat managing director, Jules Lejeune forecasts unchanged volumes for the rest of the year if current trends continue. 

These figures are matched by data on consumption of PS materials per capita. Finat’s figures show a significant drop compared to 2006 everywhere except Eastern Europe. The decrease in PS materials consumption fell most quickly in the UK, Ireland and Scandinavia, followed by Southern and Central Europe. The UK and Ireland stay at the front of the consumption league, however, at 12.8 square meters per capita. Eastern Europe lags behind at 2.8 square meters per capita, demonstrating the huge potential for growth in this region, while per capita PS consumption in Southern Europe remains at roughly half the level of Central and Northern European countries. 

These Europe-wide figures are being confirmed on the national level. In Spain, for example, the Spanish label federation Anfec – representing some 70 percent of the labels manufactured in the country – saw a steep fall in demand last year from a peak of 400m sq meters in 2007 to 347m in 2009, with paper substrates affected far more than films. The same trend was seen in regard to new press installations among Anfec members, falling from a peak of 54 a year in 2007 to 37 in 2009. Digital press installations fell from eleven a year to six. 

The reasons for the turnaround in the fortunes of the European label industry can be put down to three factors. 

Firstly, the rate of de-stocking is slowing. De-stocking was a crucial factor in the collapse of production during the crisis. As demand fell, and uncertainty increased, inventories were sharply reduced and producers met part of the remaining demand by depleting stocks. As a result, production fell much faster than demand.  

Economists estimate that the decline in inventories at the start of the crisis averaged between 35 and an astonishing 50 percent of GDP. 

During the last two quarters of 2009, the rate of decline in inventories was slowing, and fed back surprisingly strongly into increased production. 

Secondly, continued growth – albeit at lower rates – in Eastern Europe, has provided an outlet for label production and supported the continued growth of the label converting sector.

Thirdly, we have seen a remarkable surge in the German economy. Germany is Europe's largest economy, with 82 million people and a 2.4 trillion euro ($3.23 trillion) gross domestic product, providing critical links between the European Union's East and West. In the second quarter of this year, Germany’s economy grew by an annualized rate of 9 percent. This has partially offset sluggish growth in Britain and France of 2.4 percent, with Spain, Ireland, Portugal and Greece all at near zero or shrinking. Germany is now growing faster than the US and has a lower jobless rate –7.6 percent in August vs 9.6 percent – Germany's looming problem is worker shortages. 

Converter trends 

We continue to see consolidation at the highest level of the European converting industry, and the emergence of an elite of pan-regional and global players.

A survey by L&L in 2009 revealed that an astonishing 41 percent of the European converters now have operations in two or more European countries, and 18 percent have operations in countries outside Europe.

One example of a new pan-European converter is Austria-based converter Marzek Etiketten, which this year acquired Ukrainian company Pechatny Dvor, now renamed Marzek Pechatny Dvor Llc. This deal expands the consolidated group turnover of the company’s three production locations in Austria, Hungary and the Ukraine to $67m (48m euro).

Pago is another group which has been expanding rapidly into a pan-regional, and now a global player. In November the company announced the acquisition of Romanian label converter Gebacolor, following the acquisition of an interest in Thai converter Salee Printing. Then in October came the stunning news that Pago had formed a global partnership with US converting group York Label. The two companies’ joint global network offers multi-national companies the ability to achieve worldwide brand consistency and quality via standardized artwork, graphic and printing platforms. Pago and York Label collectively have over 20 facilities, 140 printing presses, 1,900 associates and combined serve the household and personal care, food & beverage, wine & spirits, and healthcare markets.    

German-based Rako Group also spread its wings to become a global player in 2009. In March, the company announced an expansion of its operations to China, setting up a 1,000 sqm state-of-the-art plant in Hangzhou, in Zhejiang Province, and installing the country’s first Gallus RCS 330. Towards the end of the year Rako set up operations in South Africa.

Of course there remain significant challenges for European converters. Profitability levels remain worryingly low, and this, along with fears about the economic situation, has been a drag on the investment needed to diversify into more value added market sectors. In the last survey carried out by L&L at Labelexpo Europe in 2009, 16 percent of our sample said they were experiencing minus sales growth. 

Almost one fifth reported sales growth of under 5 percent and another 22 percent sales growth of 6-10 percent. In other words, two thirds of those surveyed are seeing sales growth below levels considered necessary for future investment-led growth. The situation is particularly harsh in a market like the UK, where intense price pressure from the dominant retail brand sector continues to drive margins down. 

Technology

Turning to technology, we see that 40 percent of European converters are now using digital label printing processes of some kind. In an interesting analysis of historical press installations, L&L’s Mike Fairley has detected an interesting long term trend. Fairley points out that rotary letterpress shows a strong growth curve in Europe in the 1970s before being superseded by flexo in the 1980s and then UV flexo in the 1990s. Looking at the growth curve of each technology, then comparing it with digital press installations in Europe, Fairley sees exactly the same pattern developing. On that basis, digital could become the dominant installed machinery base within the decade (it already accounts of 12 percent of all new press sales and is the biggest narrow web ‘brand’). 

Materials

We still see a split between East and West Europe in terms of print technology and types of labels consumed. Paper, wet glue labels remain a powerful force in Eastern Europe, accounting for over half of all label volume. But in Western Europe, PS is by far the dominant technology, and increasing numbers of wet glue, sheet fed offset label printers are now installing web-fed presses to diversify into a new set of applications. 

The fastest growing label types in Europe at the moment are the unsupported film technologies – albeit from a small base. Shrink sleeve labels were converted by almost one fifth of European label converters in 2009, up from 8 percent in 2007; wraparound film is now converted by 14 percent of European converters, up from 12 percent in 2007.  Again, it should be emphasized that PS remains the dominant technology, converted by 94 percent of the printers surveyed by L&L in 2009.

In-mold label production has moved very little in terms of converter base, but there is an interesting shift to the development of in-line IML production from sheet fed with new in-line converting systems being released by the likes of Schober. 

This article was published in the 2011 L&L Yearbook