Label & Narrow Web caught up with Donald Nolan, president of Avery Dennison's Materials Group, during Labelexpo Europe to discuss the group, its markets and sustainability.
Label & Narrow Web: The pressure sensitive label invented by the founder of your company now represents more than 70% of your business. Yet this is a product which is no longer expanding, at least in Europe and North America, which are your main markets. What is your strategy to deal with this situation?
Don Nolan: We have two areas of expansion. First, by our presence in emerging countries, which are experiencing strong growth of pressure sensitive labels, and then - most importantly – by our policy of innovation. For example, we have already launched no fewer than seventeen innovative products in Europe this year.
L&NW: In Europe, as elsewhere, the pressure-sensitive label is not exactly the flavor of the month among some environmentalists, who see it as a pollutant. What do you say to that?
DN: Sustainable development is part of Avery Dennison’s strategic objectives for 2013 and for the coming years. We have largely overcome the problem that existed on FSC certified paper, namely that our customers asked for these papers but did not want to pay more. Today we can provide these papers generally at comparable prices, and 30-40% of our papers are FSC certified. Another example - Avery Dennison has recently developed a “switchable” adhesive that facilitates the recycling of PET bottles. These are just two examples of many that you will find in the " Sustainability Report" available on our website.
L&NW: For the PS label, there is also a lot of debate about liner recycling. There are several initiatives in Europe to try to solve this problem. What is Avery Dennison doing exactly?
DN: Recycling of used liner is a problem that affects all players in the label industry, not just producers of labelstock. You must remember that this problem mainly concerns glassines, which are very difficult to recycle – this is less so with the synthetic liners which are increasingly used in the production of labelstock. So the problem of recycling liners will tend to decrease in the coming years. However, we believe the industry can recycle more of what we produce. Our role is to inform the printer and even more the end-user on recycling opportunities that exist in their region.
L&NW: For 100% synthetic labelstock there is also a reduction of the thickness of the substrate. This should also help to reduce waste. Two years ago at Labelexpo 2011, in cooperation with Gallus, you showed “Thinstream”, a construction with a twelve-micron liner.
DN: Thinstream is one of a number of thinner materials and constructions we’ve developed. It requires special equipment and as a result its success has been limited, but since 2011, we have made great progress on “thin,” especially in developing our “ThinkThin” range of papers and films as well as our "ClearCut " range of materials, which provide the "no-label look" and finish at high speed with very thin materials.
L&NW: Compared to some of its competitors, Avery Dennison lacks vertical integration from the forest to the label. Do you see this as a strength or a weakness?
DN: This difference works more in our favor, since we are at liberty to select our paper suppliers so as to get the best price / quality ratio. For filmics, same situation, same benefits, although there are some we make ourselves, such as MDO films. When talking about vertical integration, it is important to note that we produce most of our own adhesives, and our expertise in this area is a key contribution to the success of our brand.
L&NW: Do you use solvent-based adhesives?
DN: We have reduced their use, but technically it is not yet possible to dispense with solvents for certain applications. Avery Dennison is actively engaged in everything that advances sustainable development, and we are actively looking at “bio” adhesives using more renewable raw materials.
L&NW: In 2012, 71% of Avery Dennison’s global sales came from self-adhesive materials. We are discussing this here at Labelexpo Europe, where several exhibitors are offering alternatives - including ' linerless ' - which have the potential to harm you. Is this a real danger for you?
DN: The industry has been speaking about linerless for at least twenty years. There are many efforts under way, including some of our own, but as of today the range of applications is very limited. So even the solutions announced this week at Labelexpo, clever as they are, will not shake the industry.
L&NW: Like most large companies, Avery Dennison suffered the effects of the financial crisis and the economic downturn that followed. Your net income in 2012 was up approximately 13% over the previous year, but below peak pre-crisis levels, and even below 2010. Can you comment on these results and tell us something about the overall strategy of Avery Dennison?
DN: We have weathered the effects of the downturn and strengthened the company. Avery Dennison net income was up last year, despite sluggish markets in developed countries, and we delivered strong free cash flow. As a result, our total return to shareholders improved substantially. Investors are recognizing our strategy to focus on our two core businesses (materials and retail branding and information solutions), reduce costs, and return more cash to shareholders through dividends and share buybacks. We took a major strategic step in July with the sale of a specialty converting business and our office products division, which has been contributing much less to results over the past few years as their industry goes through a technological shift and a period of consolidation. As a result, we are focused on two businesses, both of which are industry leaders and have strong positions in emerging markets.
L&NW: Thank you, Don, for taking the time to answer our questions.