Conventional Wisdom

The Global Packaging Market

Pack Expo International 2002 was successful by virtually any measure. Its success reflects the state of the packaging industry. Nearly 72,000 packaging professionals attended the five-day event, held biennially in Chicago.

The attendance figure included 5,978 international visitors from 92 countries, who came to evaluate, compare and buy the latest packaging technologies. The Conference at Pack Expo program drew a record 830 registrants. This year’s show included 2,007 exhibiting companies occupying more than 1,296,925 net square feet. Of the many conference presentations, the session on the state of the global packaging market attracted an overwhelming number of show goers. — Clyde Witt, executive editor

Ken Brooks and Tim Rothwell, both of Ernst & Young Corporate Finance Inc., presented highlights from the 530-page study The Evolving Global Packaging Market: Directions, Challenges and Drivers of Change. The global packaging market is a $417 billion industry, comprising more than 100,000 companies throughout the world.

Investors have been increasingly reluctant to enter the packaging sector, put off by low, single-digit growth prospects, high debt levels and the perception of low profitability. Recent industry restructuring and consolidation has largely failed to address the situation. Large, pure-play packaging companies have underperformed during the last six years, though market values have been less volatile.

Despite the general dismal stock performance, there are signs that the world’s larger packaging companies are beginning to appreciate in value. Cash flow multiples are also beginning to increase, although they are still generally low in many cases, around four times EV/EBITDA. It appears that 2002 will be a watershed year, heralding further recovery in the packaging sector.

Market overview

The corporate structure of the global packaging industry has changed significantly during the last five years. Globalization and associated structural changes have fueled this concentration. Industrial packaging (also called transport packaging) still accounts for about 30 percent of the total packaging dollar.

Overall estimates suggest that the combined sales of the world’s top 100 companies accounted for approximately 45 percent of the world packaging sales in 2000. The top 10 companies accounted for 14 percent of those sales.

Industry concentration is highest in North America with one-third of the sales in the hands of the top 10 players, whereas in Europe this figure is below 18 percent. Across Asia Pacific and Latin America, it is lower still.

Within the top 100 companies, the larger players have generally experienced stronger sales growth compared with their smaller counterparts. This reflects the higher amount of acquisition activity undertaken by these industry leaders in recent years. Profit trends, however, show a slightly different pattern. Smaller companies appear to perform just as well as the larger players. Innovation and niche marketing have offered a road to higher profit for many smaller companies.

The future

Although industry issues impact the packaging market as a whole, the more dynamic companies view the future with optimism. Such companies are not only looking inward at their own cost bases and product innovation, they are also recognizing the need to embrace global consolidation. This is evidenced by the surge of acquisition activity during the past five years.

In small-sized to medium-sized companies, moves toward returning to private ownership have taken place on the back of low market valuations and small capitalization.

Maximizing supply chain efficiencies by embracing the benefits of e-commerce will also continue to increase in importance. Facilities management and outsourcing — involving the extension of packaging companies’ role for supplying extra value — are becoming more commonplace in many segments of the market.

For a complete copy of this study, contact Caroline Thomas, [email protected], or on-line at www.packagingnews.co.uk.

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