Packaging Industry Overview

ContentsIntroduction2Indian Packaging Industry Scenario5Use and Consumption in Indian Market6Types of Packaging and Packaging Material Used8Packaging Market Dynamics9Flexible Packaging Industry Overview10Flexible Packaging Market Dynamics12Factors Driving Flexible Packaging Industry13Trends Affecting Packaging Industry: Globally and in India16Globally16In India:17Key Regulatory Developments and Their Impact18Factors for Success of Packaging Manufacturer19M&A in Packaging Industry25Consolidation by the Top Players26Flexible Packaging Dominates26Reasons for M&A27Major Transactions in 2012 by Segment27Flexible27M&A: India27

Introduction

The global market for consumer packaging in 2010 was valued at just over US$395bn. The packaging market grew by 6% between 2009/10 reverting back to packaging values seen in 2008. The near term outlook is still clouded by economic challenges and fragile consumer confidence. However, long term growth is expected to be on average around 3% a year, with the market reaching US$456bn in 2015, although some segments will display higher growth rates.

Food packaging is the largest segment, accounting for 51% of the total market value at US$202bn. Beverage packaging accounts for 18%, followed by 6% for healthcare and 5% for cosmetics.Packaging for healthcare and cosmetics is experiencing good growth, with healthcare predicted to be the fastest growing end use category, at 4.5% per year until 2015. Food and beverage packaging are also growing but are more in line with overall packaging growth of 3%.

Plastic (rigid plastic and flexible) accounted for 37% of all global packaging sales in 2010, the largest share of the market. Within plastics, rigid plastics is expected to be the fastest growing packaging material during the period 2010 to 2015 with a predicted average annual growth rate of just over 4%. Growth will be driven by consumer preference for lightness, safety, transparency, convenience and the microwave ability of rigid plastic packaging.Metal, which includes food and beverage cans, accounted for 15% of the consumer packaging market value in 2010 with metal beverage cans accounting for 6% of this share. Metal packaging overall is forecast to grow at around 2% a year to 2015.

Long term growth strongly underlines a shift in balance towards the emerging markets. The Asia, Oceania, Africa & Middle East region has now increased its packaging market value share to 34% matching that of Europe which dropped by 2% between 2009/10.Both North America and Europe show moderate year on year increases with Europe faring a little bit better than North America.

.

As such, the health of the packaging industry is linked to that of the world economy as a whole. However, reliant upon upstream industries for their raw materials, packaging converters have to cope with fluctuations in raw material prices, dependent upon levels of supply and demand. In a climate of low overall inflation, rising prices for raw materials (particularly plastic resin) have put something of a squeeze on converters. Downward pressure on prices is being exerted by brand owners and retailers alike exacerbated by moves towards consolidation at all levels of the supply chain. In addition, moves towards central purchasing by packaging buyers have also impacted upon packaging margins. The growing use of ecommerce and reverse auctions has made the whole business of materials sourcing (especially in commodity areas) much simpler, promoting cost efficiency for users of consumables.These pressures are very much to the fore in mature markets in Western Europe, Japan and North America, and have led in some instances to near zero growth in packaging consumption in the developed world.However, even here there remain opportunities for growth driven by increasing consumption of packaged rather than unpackaged food as well as general growth across a range of consumer goods areas. At the same time, rapid growth in packaging usage in the fast-growing economies of Asia and also Eastern Europe has presented new opportunities for packaging suppliers, although the inherent risks of a high degree of exposure to emerging markets must be taken into account, especially given the experience of markets in South America during recent years.

Indian Packaging Industry Scenario

Indian packaging industry is valued at about US$ 13 billion. The industry is expected to grow at a 10-year compound annual growth rate (CAGR) of over 15 per cent to about US$ 28 billion by 2014. This growth trend is expected to continue in future, driven by greater demand because of economic growth; increasing share of organized retail will be a key driver. In addition, the packaging industry is increasingly becoming technology-oriented with innovations driving the market; this is expected to lead to packaging that increases shelf life, reduces cost and is light weight.

The global packaging market was valued at US$ 563 billion in 2009. India accounts for 2-3 per cent of the global packaging market. The industry is highly fragmented; however, large packaging manufacturers account for about 70 per cent of the total market. While there is a predominance of paper and paper boards, and plastics in the global market, plastics and other materials such as textiles and wood are mainly used for packaging products in India. At 49 per cent, plastics are the largest single material used for packaging in India.

Use and Consumption in Indian Market

Estimated share of Packaging Material Consumption (2009)

Packaging Material Market (US$ Billion) (2009)

The plastics packaging market was valued at US$ 6.5 billion in 2009. It was followed by paper and boards at US$ 1.6 billion and glass at US$ 1.1 billion, with other materials accounting for the balance US$ 3.2 billion.

Laminated products including form-fill-seal pouches, laminated tubes and tetra packs are growing at around 30% p.a. There are about 600-700 packaging machinery manufacturers, 95% of which are in the small and medium sector located all over India. Germany and Italy are the latest suppliers of packaging machinery to India but focus is now shifting on Taiwan, Korea and China. Indian packaging machinery imports are USD 125 million. Indian packaging machinery exports are rapidly growing. India's per capita packaging consumption is less than USD 15 against worldwide average of nearly USD 100. The large growing middle class, liberalization and organized retail sector are the catalysts to growth in packaging. Food and Pharma packaging are the key driving segments

Major Machinery Import Countries

On the packaging machinery side, while a wide range is manufactured in India, the industry imports machinery, especially at the high end. Germany and Italy are the largest suppliers of packaging machinery to India but focus is now shifting on Taiwan and China. The import (customs) duty for packaging machinery is 25.58% for 2007-08. Indias imports at 20 & 25% of its total packing machinery import indicate further opportunities for Italian companies to explore.

Types of Packaging and Packaging Material Used

Packaging can be classified by use or by the type of end-product required. Consumer or primary packaging contains products purchased directly by customers; bulk or tertiary or transit packaging refers to containers that deliver large or bulk loads of a packaged product. Rigid and flexible are the two most significant types of packaging in use today. Secondary packaging refers to outer covers of primary packaging, e.g., box covering toothpaste tube. Caps, closures and labels may be flexible or rigid depending on the packaging requirement.

Types of Packaging

Packaging Market Dynamics

Growth in per capita income, changing lifestyle patterns, growth of consumer society and health consciousness are some of the key drivers of the industry. Most of the raw materials required for packaging are abundantly available in the country with well-established industries for manufacturing plastics, paper, glass and metals. Increasing global trade and India's WTO commitment of rationalizing tariffs and lowering trade barriers have given rise to international trade in packaging materials and machinery. Greater competition, need for labelling of quality, quantity and price of goods according to Government-prescribed norms and preference for packed goods are some of the reasons that have resulted in innovation and introduction of technology in the packaging market. The major segments of packaging industry are: flexible packaging, folding cartons, corrugated boards and boxes, labels, shrink sleeves and wrappings and glass bottles. Rigid packaging dominates with about 80 per cent market share. However, there is a shift in demand and flexible packaging demand is increasing. Key advantages of flexible packaging over rigid include: light weight, small pack size, and energy savings, ease of storage and transportation and convenient disposal.

Properties of Rigid and Flexible Packaging

Flexible Packaging Industry Overview

The flexible packaging industry is estimated to be valued at US$ 900 million, growing at about 20 per cent annually. Plastics, paper and metals are the key materials used in flexible packaging products, which are made from foil or paper sheet or laminated paper and plastic layers. Plastics dominate the flexible packaging market because of their properties: they can be modified by co-polymerization and the use of additives to match exact packaging requirements of the commodity to be packed. Metal packaging is generally in the form of cans; Paper is used in bags, envelopes, pouches, sachets and wraps Plastics are used in bulk bags for commodities such as sugar, salt, rice, flour, onions, potatoes and tea as well as pouches and sachets Woven fabrics are used for packing industrial products such as cement, pesticides and fertilizer.

Projected Growth in Flexible Packaging Market

About 40-50 per cent of the total plastics produced in the country are used in the packaging industry. As a packaging medium, flexible packaging accounted for about 33 per cent of the total industry in 2009. Multilayer plastics are useful for strength, seal ability, high-barrier properties and printability.

Share of Packaging Mediums (2009)

Polymers have an increasing role in flexible packaging. Laminates and multi-layered coextruded films are expected to have an increasing presence in the retail products segment.

Use of Polymers in Flexible Packaging

Flexible Packaging Market Dynamics

Key user segments of packaging are: fresh and frozen foods, beverages, pharmaceuticals, snacks and confectionery, dairy products and shopping bags. The utility of flexible packaging arises from properties of aroma retention, sealing and heat insulation, barrier against moisture and strength.

Consumption of Flexible Packaging 2009 Demand for small packs has given impetus to the flexible pouch segment which allows small-quantity packaging. Flexible bags are used for carrying bulk goods such as food grains and cement. Carry bags for retail shopping is also popular. Laminated tubes and bags in boxes are the other common flexible products; laminated tubes are mainly used for pastes and ointments, while bags in boxes for moisture absorbing products such as tea and coffee. Ease of printing has made flexible packaging a tool for branding and display of retail goods. A wide range of color options available for use in plastics has made package designing easier. Growing use of flexible packaging can be gauged from changing packaging trends. Over the last 10 years, conventional packaging materials such as glass, tin plate, paper, aluminum, and jute have been replaced with flexible packaging materials in several applications. High-density polyethylene (HDPE), Low-density polyethylene (LDPE), Biaxial-oriented polypropylene (BOPP) and Polyvinyl chloride (PVC) are the major materials in use for flexible packaging.

Changing Consumption PatternsFactors Driving Flexible Packaging Industry

Food and fast moving consumer goods (FMCG) industries are the largest consumers of flexible packaging products; food accounts for 38 per cent of flexible packaging market. Food and grocery market in India is among the six largest in the world; food and grocery retail contributes to 70 per cent of the total retail sales. According to industry estimates, the segment is growing at a rate of 104 per cent and is expected to grow to US$ 482 billion by 2020. According to the Industrial Entrepreneur's Memorandum (IEM) filed with the Secretariat for Industrial Assistance (SIA) up to 2010, investments in demand sectors for flexible packaging increased at a CAGR of 25.2%.

Investments in Demand Sectors (US$ Million)

During the Eleventh Five-Year Plan period (2007-2012), the Government has initiated major infrastructure development programs such as establishment of mega food parks, cold chains, and facilities required for value addition, preservation and modernization. Up to 2015, the projected investment in food processing industry is US$ 23 billion. While departmental retail is a key driver of flexible packaging in the urban foods markets, rural demand is being generated because of unit packaging needs. The food processing sector grew at an impressive 14.7 per cent in 2008-09, despite a global economic slowdown; the sector is expected to maintain a steady annual growth of around 20 per cent over the next five years.

Processed Foods Exports GrowthThe Government's Vision-2015 action plan has set specific targets including: tripling the industry size, raising processing level from 6 per cent to 20 per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing India's share in global food trade to 3 per cent.

Despite the menace of disposal, plastic bags are preferred because they emit lower greenhouse gas emissions than paper bags, and consume less energy than jute and other textiles.

Applications of Plastic in Food Packaging

The Indian food-processing industry has started looking outward to acquire the latest food ingredients and technology; an indication of this is the presence of numerous multinational food flavour, ingredient, and machinery companies in India.

Polymer consumption in India is 4.6 kg per capita as compared to 23 kg, globally; there is significant potential for growth in India; new investments have been announced.

Major Flexible Packaging Manufacturers

NameDescription

Jindal Poly Films Ltd.B.C. Jindal Group company; Established in 2003; Manufacturing unit at Nasik world's largest single location BOPTE and BOPP film plant; Among the 10 largest BOPET companies in the world; Products: PET films, BOPP films, metalised films and coated films.

Positive Packaging Industries LimitedEnpee Group company; Manufacturing units in India, Nigeria and UAE;Products: printed and laminated barrier grade flexible packaging materials.

Uflex LimitedInception in 1983; Manufacturing units in India and Dubai- FDA and BGAapproved; Products: polyester chip, BOPET, BOPP and CPP films (plain and laminated), coated films, laminates, pouches, holographic films, inks and adhesives.

Essel PropackPart of Essel Group; 23 facilities in 12 countries; Products: laminated tubes, plastic tubes, caps and closures, Etain and Egnite; World's largest manufacturer of laminated tubes.

Paharpur 3PEstablished in 1987 by Paharpur Cooling Towers; Located in Delhi-NCR;Products: aluminium foil, laminates, pouches and specialty films.

Multi-Flex Lami-Print LimitedManufacturing unit at Mahad, Maharashtra; Products: polyester, BOPP,metallised polyester, aluminium-foil, polyethylene and cast polypropylene(CPP).

Cosmo FilmsEstablished in 1981; Manufacturing units in India, Korea and Netherlands;Products: BOPP, wet laminating, printing and pouching, label films, soap wrap films, over wrap films, value added films and, tapes and textiles.

The Paper Products LimitedEstablished in 1935; Products: foil and paper laminates, high barrier products,holographic images, hot melt and cold seal coatings, preformed pouches

Jhaveri Flexo India LimitedEstablished in 1998; Manufacturing units at Silvassa and Aurangabad; Products: durable laminates, cling film, stretch film, surface protection film, stretch hood film.

Garware Polyester LimitedAmong the largest polyester film companies with 20 years of operations;Manufacturing units at Aurangabad; Products: clear film with heat seal layer on one side, laminates and packaging grade metallised film.

Polyplex Corporation LimitedEstablished in 1984; Among the five largest polyester film companies in the world; Manufacturing units in India, Thailand and Turkey; Products: polyester

Umax PackagingManufacturing unit at Mogra, Rajasthan; Products: stand-up pouches, shrink films and LDPE shrink films.

Trends Affecting Packaging Industry: Globally and in India

Globally

The ageing of the world population The trend towards smaller households The increasing requirement for convenience among consumers Rising health awareness among consumers The trend towards 'on-the-go' lifestyles among increasingly time-poor consumers Growing requirements for brand enhancement/ differentiation in an increasingly competitive environment New packaging material development The move towards smaller pack sizes as the incidence of families eating together at the dinner table become less common Increasing awareness of environmental issues, and the adoption of new regulatory requirements on packaging recycling

Out of all these factors, health awareness was regarded as the single most important driver to growth in the packaging industry in a Pira survey of the WPO membership. The ageing of the populations throughout the world was considered the least important driver to growth in the market, although even in this case, more than half of all respondents considered this to be important to some degree.

In India:

1. UrbanizationModern technology is now an integral part of nation's society today with high-end package usage increasing rapidly. As consumerism is rising, rural India is also slowly changing into more of an urban society. The liberalization of the Indian economy, coupled with globalization and the influx of the multi-nationals, has improved the quality of all types of primary and secondary packaging. Also industrialization and expected emergence of the organized retail industry is fuelling the growth of packaging industry.

2. Increasing Health ConsciousnessAs people are becoming more health conscious, there is a growing trend towards well packed, branded products rather than the loose and unpackaged formats. Today even a common man is conscious about the food intake he consumes in day-to-day life.

3. Low Purchasing Power resulting in Purchase of Small PacketsIndia being a growing country, purchasing power capacity of Indian consumers is lower; the consumer goods come in small, affordable packages. Apart from the normal products packed in flexible packaging, the use of flexible in India includes some novel applications not usually seen in the developed world. Products like toothpaste, toothpowder, and fairness creams in laminated pouches are highly innovative and are not used elsewhere. Another typical example of such applications is tobacco and betel nut-based intoxicants and mouth fresheners catering to unique Indian taste.

4. Indian Economy Experiencing Good Growth ProspectsThe Indian economy is growing at a promising rate, with growth of outputs in agriculture, industry and tertiary sectors. Overall economic growth has proved to be beneficial for the consumer goods market, with more and more products becoming affordable to a larger section of the population.

5. Changing Food Habits amongst IndiansChanging lifestyles and lesser time to spend in kitchens are resulting in more incidence of eating away from homes resulting in explosive growth of restaurants and fast food outlets all over the country. Indians are trying out newer cuisines and also purchasing similar food items for their homes. Therefore, the review period has seen new products like pasta, soups, and noodles being launched in India, fuelling the growth of packaging industry in India.

6. Personal health consciousness amongst IndiansWith growing awareness towards contagious diseases like AIDS and other STDs, awareness towards usage of contraceptives and disposables syringes have increased the demand for packaging required for the same.

7. Rural Marketing Pushing Demand for SachetsIndia comprises of a big rural market and there has been growing focus on rural marketing, whereby manufacturers are introducing low-priced goods in smaller pack sizes. Low priced sachets have proved to be extremely popular in smaller towns and villages, where people do not prefer to buy larger packs due to financial constraints.

Key Regulatory Developments and Their Impact

New Packaging Norms on Standard Pack Sizes

After some delays in implementation due to opposition from the sector, the new norms on packaging set by the Consumer Affairs Ministry in India come into effect on 1st November 2012. As per this, players will have to mandatorily pack items in standard sizes only, taking away the leeway to tweak weight to accommodate rising raw material costs, without impacting prices for the consumer. Small pack sizes, vital as recruiter packs for new consumers, are exempt from the new rules.

Food Safety And Standards (Packaging And Labeling) Regulations, 2011

The Food Safety and Standards Authority of India proposed to make Food Safety and Standards Regulations in 2011 and came out with its guidelines regarding the same. The regulation provides clearly defined labeling requirements for all the foods packaged in India.

It gives clear guidelines on labeling a packaged food, covering things like date of manufacture and best used by, date of packaging, not for infants, etc. The law also covers the general requirements for packaging a food product and gives clear legal guidelines regarding this.

To meet new food packaging industry norms, Indian companies will need to look at technological innovation, to meet higher quality standards. While it was earlier required only to meet certain technical guidelines on material usage, the process of packaging was not under the scanner, as it will now be. This may be a challenge at first for smaller players who might need to upgrade their processes and infrastructure to meet the newer, more stringent norms of standardization. Players who are able to rise to the challenge, have a lot to gain as this presents an opportunity to improve Indias footing in the global market as well, on the perception front, as this marks a shift to quality management from quality control.

Ban on usage of flexible plastics for tobacco products / Ban on Gutkha /Chewing tobacco

In February 2011, the Supreme Court of India banned the usage of flexible plastics for tobacco products. This notification was aimed at clearing the impact that these millions of smaller sachet packs were having on the overall environment and also the cities ecological systems. Further, many states have banned the production and sale of Gutkha products altogether. This is expected to highly impact the consumption of packaging material by this sector. Consumption of Polyester Film in Pan Masala and Gutkha accounts for around30 percent 35 percent of the domestic demand, thus severely impacting players for whom this was a core business.

Environmental Issues Impact on Plastic Materials

The Indian packaging industry accounts for more than 50 percent of the plastics produced in the country. Due to the growth in packaged goods consumption, the Indian packaging industry has been under the lens of environmental agencies and regulators. This has resulted in increased legislation and regulations to minimize the environmental impact of packaging materials.

Companies especially in the flexible and rigid plastics are being targeted by the regulators as in the regulators view, these are seen to have the maximum impact on the environment.

Factors for Success of Packaging Manufacturer

1. Raw Material Prices

It is crucial for packaging businesses to manage the stability of their input raw material costs and pass through as much of the raw material price inflation as possible to customers. On the supply side, key feedstock suppliers are typically large global producers that have the power to pass on higher commodity costs and increase prices to their customers when supply is tight, which in turn increases input prices for the packaging producer.On the customer side, there are large and powerful consumer goods companies that may not wish to pass price increases to end consumers and use the threat of switching to keep suppliers in line.On the procurement side, the best players tend to balance the security of contracts with opportunistic spot purchases, which may also require balance sheet flexibility. Here, it helps to have a deep understanding of the commodity markets and suppliers that may have excess capacity. Knowledge of a suppliers business model and circumstances can also help when negotiating rebates. The negotiated rebate terms of key raw materials contracts are often a source of competitive advantage and closely guarded by senior management.On the customer side, a good packaging management team will try to ensure that customer contracts have a raw material inflation pass-through mechanism. It can be important to minimize the lag period between raw material price increases.

Packaging Value Chain

Significant price advantages can be achieved through market intelligence and skilful negotiating Chart below illustrates the performance of one packaging company against the relevant raw material index.

Raw Material Purchasing Effectiveness

Questions to be addressed:

How competitive are the input prices I am paying compared with the relevant index and my competitors? How well does the procurement manager know the market and am I taking economic advantage of this knowledge? What measures am I taking to ensure supply of raw material if supply tightens? Are we talking to multiple suppliers to ensure we have the best pricing? Do I know the impact of raw material inflation on my bottom line and am I getting the maximum possible percentage of price pass-through?

2. Waste Reduction

Given the increased volatility in raw material prices over the past few years (particularly in polymer raw materials), and the increasing concern over the environmental impact of packaging, it has become extremely important to reduce the amount of material used in the production of packaging both to packaging producers and their customers.Packaging producers have come under pressure to reduce process scrap as the cost of lost material cannot be recovered from customers (although a degree of scrap is usually priced into print runs and unprinted film and trim can generally be reprocessed).At the same time, customers have also put pressure on producers to reduce the material content of packaging (basisweight) a process commonly referred to as down-gauging.To remain competitive, manufacturers have had to make process improvements and invest in equipment designed to minimize scrap and deliver the required lower basisweight materials in sufficient quality and quantity.Simple process improvements can deliver significant results: for example, by altering the way changeovers are performed, significant amounts of start-up waste can be eliminated from printing or extrusion processes.However, in most cases, improvements have required significant capital expenditure (capex) investment. Recycling equipment, wider machines and new printing and extrusion technologies can all have a significant impact on scrap and basis weight.Those manufacturers that have not invested in a timely fashion and have not decommissioned outdated equipment have suffered the consequences of becoming uncompetitive on cost and inflexible in their supply capabilities.

Increasing Scrap Rate

Questions to ask: Am I recycling as much process waste as possible? How can I re-engineer products and/or processes to reduce waste or raw material content? Am I practicing continuous improvement in my production process to minimize waste? Are there small capex investments I could make to increase material raw efficiency? Am I working with my strategic clients to reduce the raw material content of their packaging?

3. Operational Performance

With its exposure to increasing raw material prices and customer purchasing power, continuous operational performance improvement is vitally important in the packaging industry.Top performers use the overall equipment effectiveness (OEE) metric hierarchy. OEE is widely used in manufacturing, but is particularly applicable to packaging given that value creation is driven by the efficient conversion of a small number of costly raw materials into a product using expensive machines and a fairly fixed labor cost. OEE is expressed as a percentage, with 100% representing perfect conversion of the inputs into product without any losses.There are three sources of losses, namely availability, performance and quality. OEE is the product of the percentages of these three quantities.

In packaging, these losses come from characteristic areas: Availability losses come from machine downtime (changeovers, maintenance or repair). Performance losses come from operating machinery slower than its rated speed (inexperienced crews or product mix and formulation changes). Quality losses come from scrap which is the percentage of material produced that is not good for sale (depending on the process, some of this may be recycled or re-introduced into the process as mentioned above).

The best performers have automated systems that collect OEE and its component sub-metrics automatically from shop-floor systems and feed them into enterprise resource planning (ERP) systems for analysis. They also have regular review sessions where drivers of underperformance and improvement are discussed and best practices shared.

Questions to ask:

Are OEE and other key metrics consistently measured and applied across my business? Are these being used to monitor and drive performance improvements and diagnose issues? Are we utilizing the potential of installed shop floor systems to simplify and harmonize the collection of required information?

4. Product and Customer Profitability

Given the relatively fixed nature of labor costs and the high cost of machinery, packaging companies are under pressure to keep their utilization levels high. Also, given the technical nature of the product and exposure to a variety of end-markets, the number of bespoke customer products or stock keeping units (SKUs) can proliferate, thereby increasing manufacturing complexity and the risk of obsolete inventory.As a result, companies can end up with large numbers of low-margin products filling up available capacity and causing increased changeover times. It can be positive in the short term to receive some contribution to fixed costs if the alternative is idle lines. In the long run, this is not a sustainable situation as it is a blocker to profitable growth and to making necessary decisions about investment and capacity.It is therefore important for management to have visibility of which end-markets, products and customer relationships are profitable with growth potential and manage these actively requesting price increases, renegotiating payment terms and even being prepared to exit customer relationships if this is not possible.Charts below illustrate the differences in profitability between products and customers, which can drive commercial decision-making.

Product Profitability Analysis

Customer Profitability Analysis

Questions to ask: Do I know which products are performing vs. underperforming and why? Which are my most profitable customer relationships and what drives this? Do my systems support the right level of detail for product and customer profitability? Are there too many SKUs in my product portfolio, impacting manufacturing efficiency?

5. Innovation

In the developed world, overall demand for consumer goods has been relatively static. However, demographic changes (e.g., decline of the nuclear family, increase in average age) and increased market share competition between established FMCG producers has required innovation on the packaging side.This has seen the introduction of a number of new developments in recent years, for example: Convenience features such as reseal able packs, easy-opening and stand-up pouches. Smaller pack sizes for single-serving and on-the-go use. More promotional packs and brand extensions to maintain customer loyalty. More eye-catching and colorful designs to enhance brand awareness and to stand out on the shelf. The development of the mass luxury or masstige category of cosmetics and other consumer goods.From an operational perspective, this means packaging producers have to be able to deliver new shapes, use new materials, print more colors in greater definition and deliver short-run lengths economically. These capabilities require investment both in new capital equipment and training. Packaging companies that dont invest in the right technologies and capabilities are at a competitive disadvantage.But this alone is insufficient. The real driver of innovation is the ultimate end-market consumer, which means that packaging producers have to have well-developed and collaborative relationships with their customers, who are closer to the end consumer.

Questions to ask:

What are the end-consumer trends driving innovation in the end-market I supply and what does this mean for my present business? Am I talking to my customers about future trends to ensure we proactively meet future needs? What are the technical and operational requirements needed to address this and have I invested adequately in the right technologies? Do I have visibility of the long-term plans for my customers product programs and what part I will play?

M&A in Packaging Industry

While expanding capacities and product portfolios, access to new markets and customers and gaining critical technology edge, have been the core factors that are driving M&A activity in the packaging sector, they are helped in no small measure by improving global sentiments and trends. With US and European countries inching towards stability, the consumption-led economies such as India and China present compelling markets. In addition, large players are divesting non-core businesses to focus on developing vertical integration and economies of scale. Mid-sized packaging companies are attractive targets now.

Packaging Industry - Global M&A Activity

Packaging Industry: Value of Deals (US$ Million) M&A Activity by Geography (2007-Sep 2012)

Consolidation by the Top Players

According to a 2011 analysis by Blaige & Company, more than half of the packaging sectors top 50 companies as of 2001, have undergone elimination or a change in the ownership. Additionally, on average, 20 percent of surviving companies have used M&A as a strategy, raising the total percentage of companies substantially involved in M&A activity to about 70 percent over the past decade.That signifies hectic activity in the sector over the past decade and the effects are evident. In the glass bottle segment for instance, from a highly fragmented industry in the 1980s, the industry now constitutes three major global players controlling nearly 90 percent of the industry. Top players have been consolidating the industry through aggressive acquisitions and divestitures.

Flexible Packaging DominatesThe approximately $670 billion global packaging industry is fragmented and is overcrowded with small players. This fragmented structure of the industry lends itself to higher merger and acquisition activity. Despite the pace of consolidation in the global packaging industry accelerating over the last few years through mergers and acquisitions, the market remains fragmented, especially in the flexible packaging industry. And it is this sector of the industry that sees the most activity in mergers and acquisitions.In 2011, the flexible packaging industry had four top players accounting for 34 percent of the market share. Within this sector, deal volume is dominated by the plastic and fiber-based packaging which accounted for 63 percent of the deals during the 2006-2012 period. In 2011, plastic packaging alone accounted for 50 percent of the deals.

Reasons for M&A

Increased Mid-Market Activity Valuations Increase Search for High Growth Regions Search for New Technologies and Patent Protection

Major Transactions in 2012 by Segment

Flexible Australia-based Amcor Ltd. agreed to acquire Aperio Group Pty Limited for approximately AUD238.0 mn. Aperio manufactures flexible food, beverage and industrial packaging. Chile-based Alusa, S.A. and Peru-based Nexus Group agreed to acquire Empaques Flexa S.A.S. for approximately US$35 million. Colombia-based Empaques manufactures flexible packaging products. An investor group led by Germany-based PINOVA Capital GmbH acquired an undisclosed majority interest in CLARUS Films GmbH, a company that manufactures plastic film packaging products for the food market. India: Amcor Ltd acquired Uniglobe Packaging Pvt Ltd, a Daman-based provider of flexible packaging services for USD21 mn. India-based Uniglobe manufactures flexible packaging products for the food, personal care and healthcare markets

M&A: India India accounts for about 2-3 percent of the global market. It has about 40 large players that dominate the industry accounting for 70 per cent of the total market and nearly 5 lakh small and medium enterprises. During the period 2007 till September 2012, 25 deals have been announced involving Indian packaging companies. All these deals barring one involved plastic based packaging firms. Of these, four deals involved foreign companies from the US, Germany, Australia and Malaysia. Some major deals above the value of $10 million include: Treofan Germany GmbH & Co KG acquired Max Specialty Films division of Max India Ltd, a New Delhi-based provider of insurance, health and allied services, for INR 5.4 bil (USD97.405mil). Amcor Ltd of Australia acquired Uniglobe Packaging Pvt Ltd, a Daman-based provider of packaging services, for INR 1.048 bil (USD 20.737 mil). India Agri Business Fund Ltd, a unit of Cooperatieve Centrale Raiffeisen-Boerenleenbank BAs Rabo Equity Advisors Pvt Ltd subsidiary, acquired a 23.92 percent stake in Vacmet India Ltd, an Agra-based manufacturer of packaging materials, for INR 519.751 mil (USD 11 mil). Morgan Stanley acquired a 5.07% stake or 1.41 mil newcordinary shares, in Ess Dee Aluminum Ltd, an aluminum foil manufacturer, for 575 Indian rupees ($14.292 US) per share or a total value of 810.75 mil rupees ($20.152 mil), in a privately negotiated transaction. Essel Propack Ltd acquired the entire share capital of Packaging India Pvt Ltd, a packaging materials manufacturer, for 1bil Indian rupees ($21.604 mil US).During the same period, two Indian companies acquired foreign companies in Romania, UK and Belgium. Time Technoplast Ltd in 2010 acquired a chemical production facility of Romanian company Solutia. Neo Corp International Ltd in 2008 acquired Europlast Ltd, a UK-based manufacturer of plastic packaging products