Narrow Web Europe

Could this be a silver lining?

By John Penhallow, Contributing Editor | September 13, 2013

It is starting to happen at last. And it’s not just Angela Merkel, François Hollande and José Manuel Barroso trying to pull Europe up by its bootstraps. No lesser authority than The Economist has just gone on record as announcing: “The prayed-for recovery in the euro area has finally come to pass.” For the moment it is timid, but even a timid recovery is better than no recovery at all. Second quarter GDP results show growth in the 2-3% range for Germany, Austria and the Czech Republic. Even France falls only just short of 2% growth, but this was maybe just due to a lot of Frenchmen working extra hard in June before the start of their four-to-six-week summer break.

All of which leads us, rather indirectly, to the question: which booths will be making the running at Labelexpo Europe in Brussels, and where will those fortunate firms be coming from?

To take the second question first, Chinese and Indian exhibitors will be thick on the ground during the show. The interesting question is why.  In the run-up to the last Labelexpo Europe in 2011 there was much hype, some of it emanating from your correspondent, to the effect that emerging country manufacturers with their low wage costs, were going to sweep the board leaving European press manufacturers crying all the way to the bankruptcy courts. Well, as we now know it didn’t happen, at least not in the way we imagined.  There is an increasing amount of discrete sub-contracting, as European equipment makers order the less sophisticated bits and bobs of their machines from Asian metal-bashers, but the vast majority of Europe’s label converters still prefer to buy European. A major North Italian press manufacturer successfully supplies its Chinese customers from its own plant and (recently opened) technology center in China. This company explained to your correspondent that the labor content as a percentage of the total cost of making a press is decreasing. The labor required is also becoming more high-tech, so that the advantages of manufacturing in low-wage-cost countries is diminishing, except for items like programing which are still frequently outsourced, mostly to India. All this does not explain the growing number of Asian equipment makers taking part in Labelexpo Europe this year. It may in part be due to the globalization of the Tarsus brand: Labelexpo events in Shanghai and New Delhi raise the profile of the event internationally and bring fresh interest from Asian machinery makers. The same would be true of US manufacturers, except that most of them have for years been regular exhibitors at the Brussels show, and with the North American market looking more chipper, the incentive to make a push into the Old Continent just isn’t there. There are still over 40 US exhibitors, which makes the US the fourth biggest in numbers, after Germany, Britain and Italy.
It is also instructive when previewing Labelexpo Europe 2013, to look at who isn’t there. China is the world’s second biggest economy, right? And the third? Well, it’s Japan of course. And how many Japanese exhibitors are there at Labelexpo Europe? OK if that’s too difficult, how many Japanese label equipment manufacturers can you name? Two, three? Well, that’s about the number exhibiting at Brussels this year – against around 40 Chinese and 20 Indian companies. Abenomics may be doing great things for the Japanese economy, but it’s clear that the breakthrough hasn’t hit the label business yet.

For label press manufacturers, the Labelexpo shows are critical to their marketing strategy, and they will all be exhibiting in Brussels this year, including a couple of firms where critical doesn’t just apply to their marketing. Take Müller Martini. The Swiss company makes narrow and wide web presses and employs 2,500 worldwide. In July, CEO Bruno Müller announced massive staff cutbacks – over 500 jobs could go – and blamed the global recession and an overvalued Swiss franc. Mr. Müller has not so far asked your correspondent for advice, but he could do worse than to concentrate his group’s efforts on narrow web presses: the market is holding up well, and at least one other Swiss label press maker has apparently overcome the currency problem.

Digital is still the buzzword in the label industry.  So all the manufacturers doing anything even remotely digital will be at Labelexpo Europe, right? Most of them, yes, some new ones, yes. But one name  (as at the time of writing) will not be occupying a booth – Benny Landa, the man who launched the Indigo name worldwide, and who took that huge booth at Drupa to announce his comeback.Why this reticence? Could be a technical hitch, could be a tactical move, but rest assured the label business has not heard the last of Mr. Nanotechnology. (Editor’s note: Sharon Rothschild, Landa’s product line and segment manager, will be on hand, speaking at the Digital Printing Technologies session.)

French without tears
Despite its tendency to shut down for the months of July and August, France is a moderately vibrant market for the label business. And every year at about this time your correspondent takes the pulse of the French market with an analysis of the top 100 French label converters. The results, based mostly on the companies’ 2012 or 2012-13 financials, show that big is not always beautiful. France’s two market leaders CCL and Autajon both saw a slight fall in sales, and both declined to reveal their profitability. Concentration in the French label industry continues to increase, with several of the medium-sized players building up their position. A peculiarity of the French label market is that it is very French. Despite 30 years of open frontiers and free capital movements, very few foreign groups (apart from CCL and Multi-Color) have gained a serious foothold. In terms of giving public access to financial data, also, France is still very French. In theory, all companies have to publish their key financial results which are then made available on a national-wide website. In practice, the rules are seldom enforced and the fines are not heavy. For the French label industry perhaps the most telling statistic this year is the rise in the number of label converters “forgetting” to give profitability results. Those who do release figures (about 50% of the sample) reported pre-tax profits ranging from +25% to -5% of sales, with a median of +3.5%. This compares favorably with the French printing industry in general.

In terms of manpower employed by France’s label converters, the top 100 locations employed 3800 in 2012, against 4000 the previous year, and median sales per employee stood slightly higher at €175,000 ($230,000).

Labelstock – winners and losers
We have seen that the promised invasion of third-world press and equipment manufacturers has not, or not yet happened. In Europe at least, the same seems to be true of labelstock. Despite the fact that it is a product easily shipped around the world, labelstock produced in Asian or African plants tends to be sold on local markets. This will not stop several Asian producers from exhibiting at Labelexpo Europe, where visitors will be able to assess producers from Turkey, India and even Vietnam. Meanwhile, back in Europe, all is not well with at least one of the continent’s biggest producers. Biting the bullet, UPM’s (outgoing) Jussi Vanhanen announced a drastic series of cuts and closures aimed at reducing its labelstock production capacity in Europe (and also in Africa and Australia). A recently acquired plant is Switzerland is to close, and there will be job losses in France, UK and Spain, said Vanhanen. So what is going wrong? The short answer is that it’s the economy. The slightly longer one is that UPM worldwide finds itself with too many older, less reliable production units, in a market where no supplier can afford to be caught with its plants down. It looks as if UPM Raflatac will increasingly concentrate production at its most modern and efficient plants in Finland and Poland.

These tribulations are not shared by labelstock producer Herma. This North German enterprise has made massive – many said, foolhardy – investments in new capacity over the past three years. The gamble seems to be paying off with a 7% rise in labelstock sales in 2012. Herma makes mainstream labelstock – you don’t sell $190 million per year just with specialties – but it’s the specialty products that create the edge, and in particular those made possible by Herma’s multi-layer coating technology. Latest specialties (on view at Labelexpo Europe of course) include materials for tire labels, wraparound wine labels, and removable labels for sensitive surfaces like books and glassware.

Surprises will come later
We can be sure that some of the best innovations for the label business are being kept under wraps until Labelexpo opens on September 24. We must hope that they will flourish on a rising tide of economic recovery.

But that to a certain extent, dear Angela, François and José Manuel, is up to you.