Publication Date: August 2005 Director of Statistics: Paula Feldman Industry Analysis: Industrial Research Associates, LLC

Transcription

1 11th ANNUAL SHIPMENTS & OUTLOOK STUDY Section III: Detailed Findings - The U.S. Packaging Machinery Industry Packaging Machinery Manufacturers Institute 4350 N. Fairfax Drive Suite 600 Arlington, VA (703) Publication Date: August 2005 Director of Statistics: Paula Feldman Industry Analysis: Industrial Research Associates, LLC

2 11th Annual Packaging Machinery Shipments & Outlook Study TABLE OF CONTENTS SECTION I: EXECUTIVE SUMMARY 1 U.S. Packaging Machinery Shipments Take Off in Trends and Developments Affecting the Market 5 Shipments by Principal Type of Customer 7 Principal End-Use Markets for U.S. Packaging Machinery 8 Forecasts 8 Macroeconomic Assumptions 8 Canadian Packaging Machinery Industry 12 Forecasts 18 Page SECTION II: INTRODUCTION 20 Scope and Objectives 20 Methodology 20 Definition of Shipments Development of Shipment Estimates SECTION III: DETAILED FINDINGS THE U.S. PACKAGING MACHINERY INDUSTRY Premade Bag Hanging, Opening, Weighing, Filling and Closing Machinery 24 Bottling Line Machinery 32 Capping, Overcapping, Lidding and Related Sealing Machinery 40 Cartoning and Multipacking Machinery and Associated Leaflet/Coupon Placing Equipment 48 Case and Tray Forming, Packing, Unpacking, Closing, and Sealing Machinery 57 Coding, Dating, Marking, Stamping, and Imprinting Machinery 66 Converting Machinery Paper, Multiwall, and Plastic Bag-Making, and Blister/Clamshell Thermoforming 74 Conveying, Feeding, Orienting, Placing, and Related Machinery 81 Filling Machinery Dry Products 89 Filling Machinery Liquid Products 97 Form/Fill/Seal Machinery Bag/Pouch 106 Inspecting, Detecting, and Checkweighing Machinery 115 Labeling Machinery 124 Palletizing, Depalletizing, and Pallet Unitizing Machinery 132 Shrink Film Heating and Heat Sealing Machinery 142 Skin and Blister Packaging Machinery 149 Wrapping Machinery 156

3 ii 11th Annual Packaging Machinery Shipments & Outlook Study Page SECTION IV: CANADIAN PACKAGING MACHINERY INDUSTRY SHIPMENTS AND OUTLOOK 165 Total Packaging Machinery Shipments 165 Basis for the Data, The Survey s Results 170 Shipments by Category of Packaging Machinery 170 Shipments by Principal Type of Customer 173 Canadian Shipments by End-Use Market Segment 173 Forecasts 173 Premade Bagging Machinery 175 Bottling Line Machinery 179 Capping and Lidding Machinery 184 Cartoning and Multipacking Machinery and Associated Leaflet/ Coupon Placing Equipment 188 Case and Tray Machinery 192 Conveying, Accumulating, Feeding, Orienting, Placing, and Related Machinery 197 Filling Machinery Dry Products 202 Inspecting, Detecting, and Checkweighing Machinery 208 Labeling Machinery 212 Palletizing, Depalletizing and Pallet Unitizing Machinery 216 All Other Packaging Machinery 223 APPENDIX: PMMI 11th Annual Packaging Machinery Shipments and Outlook Study Questionnaire Definitions of End-Use Market Segments A1 A2 A12

4 SECTIONIII DETAILED FINDINGS THE U.S. PACKAGING MACHINERY INDUSTRY

5 5 Pre-made Bagging Machinery 25 PRE-MADE BAG HANGING, OPENING, WEIGHING, FILLING, AND CLOSING/SEALING MACHINERY Definition: Machinery used for the automatic or semi-automatic hanging, opening, weighing, filling, closing, and sealing of single, premade or pre-formed paper, multiwall, and plastic bags designed to hold powdered, pelletized, granular, discrete, or other bulk industrial products as well as consumer products. Segmented by Premade Bag Hanging, Opening, Weighing, and Filling Machinery for less than 10# Bag Capacity; for 10# Bag Capacity and Larger; and by Premade Bag Closing and Sealing Machinery (heat sealing, sewing, gluing, pinching, taping, etc.). Note that integral heat sealers are included. Excluded from this category are bagging machines designed to fill large bulk bags. 2.5% Share of Total Industry $ Volume Further analysis of the results reveals that the advance in 2004 was generated largely by sharp growth in shipments of machines designed for bag capacities of less than 10 pounds. As Table 2 indicates, the other two sub-categories (premade bag fillers for greater than 10 pound capacities and premade bag closing and sealing machinery ) grew more modestly in the two percent range. The order-backlog at year-end 12/31/04 stood at $15 million, down from $22 million at the end of YEAR GROWTH TREND SOLID GROWTH FOR PRE-MADE BAGGING MACHINERY SHIPMENTS IN 2004 Shipments of pre-made bagging machinery grew by +7.2 percent in 2004 to an estimated value of $134 million. For a second consecutive year the category s growth was concentrated in domestic shipments, which were up by just over +10 percent. By contrast, exports were down for the fourth time in as many years to an estimated value of $15 million. Since 2000, bagging machinery manufacturers shipments to foreign customers have declined by nearly -56 percent; however, most of the falloff can be traced specifically to the premade bag closing and sealing machinery sub-category. In fact, exports for the rest of the category have actually remained level with only minor annual fluctuations during the same four year period. As shown in Figure 1, 2004 marked a second consecutive year of growth for shipments of premade bagging machinery as a whole. Before that, there was a three-year stretch of declines preceded by two years of lackluster growth. The trend exhibited in Figure 1, however, represents just a wide view of the category s performance during the past 10 years. A closer look at the data, however, reveals that since 1998 there have been contrasting growth patterns among the category s subsets. Shipments of the two larger of the category s three sub-groups premade bag closing and sealing machinery (sold separately from bag filling equipment) and premade bag filling machinery (>10# bag capacities) have declined fairly steadily throughout the period. During the same timeframe, however, shipments of premade bag filling machinery (<10# bag capacities), having grown in all but one year (2002), have increased by nearly +58 percent. Further insight

6 26 11th Annual Packaging Machinery Shipments & Outlook Study FIGURE 1 ANNUAL GROWTH OF U.S. PREMADE BAGGING MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY SHIPMENT GROWTH % 7% 2% % Change -3% -8% U.S. Premade Bagging Machinery Shipments Total U.S. Packaging Machinery Shipments -13% -18% into the data by sub-category is presented later in the Shipments by Type of Bagging Machinery section. TABLE 1 Average And Median Dollar Values Of 2004 Premade Bagging Machinery Shipments (Shipments Per Manufacturer Based On Survey Data) 2004 Shipments Machinery Average Median Total Premade Bagging Machinery Premade Bag Hanging, Opening, Weighing, and Filling Machinery Less than 10# Bag Capacity Premade Bag Hanging, Opening, Weighing, and Filling Machinery 10# Bag Capacity and Larger Premade Bag Closing and Sealing Machinery US$ Millions BASIS FOR THE DATA THE SURVEY S RESULTS Shipment data and estimates for 38 companies identified as manufacturers of pre-made bagging machinery were researched in conjunction with the study. A summary of the survey s composition is provided in Table 3 at the end of this section. The value of shipments for 23 participating companies (that provided data) totaled $94 million, of which the PMMI members represented $90 million. The bar chart of Figure 2 summarizes the increase-decrease data breakdown by total category and by the three principal sub-categories. Notably, the increases outweighed the declines in each of the subgroups, and therefore, the category s overall (increase/decrease/no-change) breakdown was decidedly positive with a ratio of 61%-26%-13%. Not surprisingly, considering its sharp increase in shipments, the less than 10# bag filling group recorded the most positive ratio. But, remarkably, not one of the respondents reported a decline in that sub-category for the year. Overall, the data reported by individual manufacturers ranged from a high of +100 percent (increase) to a low of -50 percent (decline). As revealed in Table 1, the

7 Pre-made Bagging Machinery 27 FIGURE 2 PERCENT OF COMPANIES REPORTING AN INCREASE, DECREASE, AND NO CHANGE IN PREMADE BAGGING MACHINERY SHIPMENTS 2004 VERSUS 2003 TOTAL Premade Bagging Machinery Category 13% 26% 61% Bag Hanging, Weighing, Filling <10# 0% 29% 71% % Reporting Increase Bag Hanging, Weighing, Filling >10# 17% 33% 50% % Reporting Decrease % Reporting No Change 67% Bag Closing, Sealing 0% 33% 0% 10% 20% 30% 40% 50% 60% 70% 80% average dollar shipment volume per manufacturer was approximately $3.8 million, which was up from $3.4 million in 2003 and roughly $3 million in The recent increases have come primarily as a result of the growth in the less-than-10-pound bag capacity sub-category. SHIPMENTS BY TYPE OF BAGGING MACHINERY The summary of estimated U.S. pre-made bagging machinery shipments in total and by principal machinery sub-category appears in Table 2. This is the seventh year that the sub-category Bag Hanging, Opening, Weighing, and Filling Machinery is being presented in two sub-sets: Machinery for Less than 10# Bag Capacity and Machinery for 10# Bag Capacity and Larger. The change from a single allencompassing sub-category was made in order to differentiate between two distinct areas of application. (1) Industrial bagging machinery (10# and above), which is designed to handle larger multiwall and heavy-duty plastic bags, is typically sold for chemicals, agricultural products, such as feed and seed, earth mineral products, and bulk food products. (2) By contrast, the majority of the other machines (for less-than 10# bag capacity) are used with single ply paper and lighter plastic film for a wider variety of applications ranging from food to hardware and to textiles. Easily identifiable as bagging machinery s most dynamic sub-category in recent years, machinery for bag capacity of less than 10# again led the way in terms of dollar shipments growth in After a sizable advance of percent in 2003, the sub-group tacked on an additional percent in 2004, bringing it s estimated total shipment volume to $41 million. The solid growth that has occurred during much of the past decade was initiated by a shift toward flexible packaging (including stand-up pouches) in place of more rigid containers for a widening variety of consumer products. Along the way, manufacturers have

8 28 11th Annual Packaging Machinery Shipments & Outlook Study TABLE 2 U.S Pre-made Bagging Machinery Shipments, Exports, And Order Backlog By Type Of Machinery PERCENT CHANGE TOTAL Industry In $ Shipments Unit U.S. Order BACKLOG 2004 Shipments 2004 Vs Shipments EXPORTS 12/31/04 Machinery ($ Millions) (%) (#) ($ Millions) ($ Millions) Premade Bag Hanging, Opening, Weighing, and Filling Machinery Less Than 10# Bag Capacity , Premade Bag Hanging, Opening, Weighing, and Filling Machinery 10# Bag Capacity and Larger Premade Bag Closing and Sealing Machinery (Excluding Heat Seal) , Total Category , introduced an array of fast, efficient, affordable, premade bagging solutions that have increasingly penetrated consumer packaging markets. The bagging machinery sub-category for larger bags (10# capacity and above) grew by +2.5 percent in 2004, following declines of -4.8 percent in 2003 and a more alarming -26 percent loss the year before. While its growth pattern during the past decade has trended downward, primarily in conjunction with capital spending reductions from its core customer segments (including industries such as agriculture and industrial chemicals), the slightly positive result of 2004, at least in part, reflects a loosening of customer purse strings for long-delayed capital projects. Finally, after six consecutive down years, shipments of bag closing and sealing machinery grew in 2004 by +2.2 percent to an estimated dollar volume of $52 million. The recent string of declines had been due in large part to the increased use of plastic bags for packaging applications, often at the expense of multiwall paper bags. Sewing and gluing applications have therefore been fewer, while heat sealing applications have proliferated. Heat sealers sold separately are reported in the Shrink Film and Heat Sealing category, while integrally mounted heat sealers are primarily reported in the bagging machinery sub-category with which it is associated. The growth recorded in 2004, albeit modest, is mostly attributable to favorable economic conditions and manufacturers reports of new machinery lines introduced by more aggressive, re-focused sales forces. TRENDS, FACTORS AND DEVELOPMENTS AFFECTING THE MARKET Positive Trends, Factors and Developments A. Further penetration of flexible packaging throughout most major market segments B. Machinery innovation Bagging machinery manufacturers remained timely with the introduction of new product lines offering meaningful improvements. Customers were receptive to new specifications including, faster speeds, quicker and easier changeover, continuous motion, modified atmosphere capabilities, bag reclosability options, and off-the-shelf replacement parts for more convenient maintenance requirements. We had a new product launch in early It caused a spike in interest from our customer base. C. Favorable domestic economic conditions As revealed at the beginning of this section, U.S. bagging

9 Pre-made Bagging Machinery 29 machinery manufacturers have drawn most of their growth in the past two years from the domestic market. The relatively strong U.S. economy during 2004 proved a positive influence on customers capital expenditure decisions. Several of the category s respondents simply attributed their 2004 success simply to those favorable conditions. Several of our customers wanted to upgrade equipment and finally had more money to spend after budget restrictions of 2002 and 2003 were eased. D. Some improvement from industrial markets Demand for larger capacity bagging applications in industrial and agricultural markets improved moderately during 2004, primarily in connection with the favorable economic conditions, a strong construction market, and a general need to upgrade packaging lines by customers that had delayed or canceled projects in recent years. As indicated in Figure 3, the industrial/agricultural chemical market segment combined to account for roughly seven percent of 2004 bagging machinery dollar shipment volume, up from five percent in E. Surging popularity of the stand-up pouch F. Continued strong demand from food segment customers A sustained enthusiasm for bag packaging applications associated with a growing variety of food products remained the greatest source of demand for bagging machinery in The food segment was responsible for 45 percent of the total shipment volume. G. Affordability of premade bagging option Investment in premade bagging machinery continued to be a popular alternative to the more expensive and more involved process of implementing form/fill/seal machinery particularly for small and medium size packaging applications and new, yet to be proven products lines. Negative Factors, Trends and Developments A. Export market A lack of improvement in demand from foreign customers continued to be a drag on the overall bagging machinery shipment volume in As mentioned earlier, however, the majority of the weakness in exports was concentrated in the bag closing and sealing sub-category. In fact, export shipments grew modestly for the year in the less than 10# bag filling machinery grouping. B. Increased competition In terms of its effect on U.S. bagging machinery shipments, competition from imports was responsible for most of the direct negative impact; however, the effect of reduced unit pricing caused by strong domestic competition, also played a limited role in lowering the aggregate dollar volume. C. Outsourcing of production abroad by customer base BAGGING MACHINERY SHIPMENTS BY TYPE OF CUSTOMER In 2004, the share of U.S. bagging machinery shipments generated by distributors and/or dealers grew by seven percentage points to 39 percent, while at the same time, the portion attributed to end-user-direct sales declined by eight percentage points to roughly 59 percent. Shipments to other machinery manufacturers accounted for the remaining two percent of the total. The noticeable shift toward distributor/dealer-based transactions and corresponding reduction in end-user direct business, although significant in a one-year timeframe, brought the ratio back in line with those recorded in the late 90s and the early part of this decade. Since 2001, three consecutive minor shifts had cumulatively pushed the end-user direct business share as high as 67 percent by BAGGING MACHINERY SHIPMENTS BY MARKET SEGMENT The pie chart of Figure 3 presents a breakdown of U.S. bagging machinery dollar shipments by principal enduse market segment. In 2004, the food segment further solidified its role as the core market from which the category s shipments were derived, as its share increased to 45 percent of the total dollar volume, up from 42 percent in However, Figure 4, which traces the pattern of the category s market segment breakdown over the past six years, illustrates that in 2000, food segment customers accounted for as much as 58 percent of the total. But since 2001, the percentage had dropped gradually to a low of 42 percent in During the same three-year period, however, shipment dollar volume from the pharmaceutical/medical segment and miscellaneous durables and nondurables segments increased moderately. Much of the shift occurred in relation to the expansion of the consumer and industrial market base for bagging.

10 30 11th Annual Packaging Machinery Shipments & Outlook Study FIGURE 3 U.S BAGGING MACHINERY SHIPMENTS BY MARKET SEGMENT (Percent of Total Dollar Value) All Other 1% Miscellaneous Consumer Durables and Non-Durables 16% Beverages 1% Food and Food Ingredients (Including Feed and Seed) 45% Industrial and Agricultural Chemicals 7% Hardware/Auto Industrial 12% Pharmaceuticals & Personal Care 18% BAGGING MACHINERY FORECASTS Shipments of bagging machinery are forecast to grow at an average annual real rate of +3.8 percent over the next three years, from an estimated $134 million in 2004 to $150 million in 2007 in constant 2004 dollars (Figure 5). The outlook is predicated on the following: The Case for Growth A. Sustained moderate growth of the U.S. economy through the period (Please see "Macroeconomic Assumptions" in the Executive Summary.) B. Pockets of improvement for exports through 2007 D. Undiminished customer quest for greater packaging line flexibility, including changeover efficiency improvements, reduced maintenance requirements, better HMI features, etc. E. Predicted continuation of the trend toward flexible packaging at the expense of rigid containers F. Further penetration of modified atmosphere bag packaging in food segment Potential Growth Limiting Factors A. Continued outsourcing of production abroad B. Plentiful supply of used and rebuilt machinery C. Further penetration of bag packaging in the pharmaceutical/medical segment, personal care segment, consumer durable and non-durable segments.

11 Pre-made Bagging Machinery 31 FIGURE 4 HISTORICAL TREND OF MARKET SEGMENT BREAKDOWN FOR U.S. BAGGING MACHINERY (As a Percentage of Total Dollar Shipments) 70% Percentage of Total Shipments 60% 50% 40% 30% 20% 10% 0% Food and Food Ingredients (Including Feed & Seed) Pharmaceuticals and Personal Care Hardware/Auto/Industrial Industrial and Agricultural Chemicals Misc. Consumer Durables and Non-Durables All Other Beverages FIGURE 5 FORECAST OF U.S. BAGGING MACHINERY SHIPMENTS (Constant 2004 Dollars) $ Milions

12 32 11th Annual Packaging Machinery Shipments & Outlook Study TABLE 3 Survey Participation And Company Secondary Research (Bagging Machinery Manufacturers) Status Number of Companies PMMI Members Completed The Questionnaire 23 Other Company Shipment Estimates Developed Through Telephone Interviews and Secondary Research 15 Total Companies 38 SURVEY PARTICIPATION AND COMPANY SECONDARY RESEARCH Table 3 summarizes the participation and methodology of data collection for the survey phase of the study. Of the telephone interviews, two were conducted with non-members.

13 Bottling Line Machinery 33 BOTTLING LINE MACHINERY (Excluding Associated Filling, Capping, and Sealing Machinery) Definition: Machinery designed to convey, place, feed, accumulate, orient, unscramble, wash, sterilize, rinse, collate, and clean bottles and cans used for liquid and dry products. The category excludes filling, capping, and sealing machinery sold as part of the bottling line. Segmented by: Bottling Line Conveyors and Accumulators; and Bottle Placing, Feeding, Rinsing, Washing, Collating, Orienting, Unscrambling, and All Other Related Machinery. 10-YEAR GROWTH TREND 5.7% Share of Total Industry $ Volume U.S. BOTTLING LINE MACHINERY SHIPMENTS UP ON MIXED RESULTS IN 2004 The aggregate value of U.S. bottling line machinery shipments, as defined, rose by +2.4 percent to approximately $304 million in The modest gain, which was produced by a mixed combination of results (i.e., higher conveyor/accumulator shipments and lower feeding, placing, unscrambling and related machinery), was directly related to a pause in domestic market demand that took hold following an extended period of growth. Conversely, exports surged by more than +52 percent to $99 million in 2004 from $65 million in the prior year, and accounted for 33 percent of total shipments, up from +22 percent in As in the prior year, the increase in exports was generated by both machinery sub-categories. The order backlog at year-end stood at $114 million, which was equivalent to 37.5 percent of total 2004 shipments, up from $79 million and 26.6 percent of the total at the end of The mere modest 2004 growth of U.S. bottling line machinery shipments is part of a current two-year (so far) pause or "breather" in domestic market demand for the equipment. For as Figure 6 illustrates, the period from 1999 through 2002 was characterized by substantial spikes in bottling line machinery growth, largely the result of major projects initiated by breweries, carbonated beverage bottlers, and especially bottled water start-ups and expansions in the U.S. Prior to 2000, year-to-year changes in the growth of bottling line machinery shipments closely tracked those of the total packaging machinery industry as a whole. But as Figure 6 also illustrates, the historical pattern was broken with a disconnect in 2000 as bottling line machinery shipment growth far outpaced the aggregate market rate through 2002, and conversely, bottling line shipments declined in 2003 when the total market grew. Nevertheless, the relationship between bottling line machinery growth and total industry growth remains somewhat correlative and coincidental, since bottling line operations have been fundamental to some of the more dynamic marketing, product development, and packaging trends that have evolved over the past few years. By the same token, however, bottling line machinery demand has traditionally been dependent on essentially five sectors of the overall domestic market for the preponderance of annual demand foremost beverages and foods followed by pharmaceuticals, chemicals, and personal care products. And while the heavy volume of major projects in the U.S. has been temporarily eased to a degree, many U.S. manufacturers of bottling line machinery have turned to the export market as a means of salvaging what has been up to now a stellar record of annual growth.

14 34 11th Annual Packaging Machinery Shipments & Outlook Study FIGURE 6 ANNUAL GROWTH OF U.S. BOTTLING LINE MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY SHIPMENT GROWTH % 25% 20% 15% U.S. Bottling Line Machinery Shipments 10% Total U.S. Packaging Machinery Shipments 5% % Change 0% -5% % -15% BASIS FOR THE DATA THE SURVEY'S RESULTS TABLE 4 Average And Median Dollar Values Of 2004 Bottling Line Machinery Shipments (Shipments Per Manufacturer Based On Survey Data) 2004 Shipments Machinery Average Median Total Bottling Line Machinery Bottling Line Conveyors and Accumulators Bottle Placing, Feeding, Rinsing, Washing, Collating, Unscrambling, and All Other Related Machinery US$ Millions Shipment data and estimates for 45 companies identified as manufacturers of bottling line machinery (as defined) were tabulated in connection with this study. A summary of the sample's composition appears in Table 6 at the end of this section. The value of shipments attributed to the 45 companies amounted to $255 million, of which 30 PMMI members represented $143.3 million. Despite the modest +2.4 percent growth number for 2004, a clear majority (53%) of manufacturers reported an increase in total bottling line machinery shipments for the year (Figure 7); however, the increase-decrease breakdown by sub-category revealed a sharp contrast between the two. This was also reflected in their growth-rate spread and in the negative (-3.7%) impact that the placing, feeding, unscrambling and related machinery sub-category exerted on the total category's growth by partially offsetting the +4.6 percent increase in shipments of the conveyor and accumulator sub-category. Ironically, the 2003 data had produced just the opposite results, with lower conveyor/accumulator shipments offsetting higher feeding placing shipments in the total numbers. As Figure 7 illustrates, whereas 61 percent of the conveyor/accumulator manufacturers reported an increase in shipments for 2004 (versus 26% reporting a decline),

15 Bottling Line Machinery 35 FIGURE 7 PERCENT OF COMPANIES REPORTING AN INCREASE, DECREASE, AND NO CHANGE IN BOTTLING LINE MACHINERY SHIPMENTS 2004 VERSUS 2003 % Reporting Increase TOTAL Bottling Line Machinery 17% 30% 53% % Reporting Decrease % Reporting No Change 61% Conveyors and Accumulators 13% 26% Feeding, Placing, Unscrambling, etc. 17% 39% 44% 0% 10% 20% 30% 40% 50% 60% 70% more manufacturers (44%) producing feeding, placing, unscrambling and related machinery reported a decrease compared with a lesser 39 percent with an increase. In the aggregate, the percentchange data ranged from a low of percent (decline) to a high of +129 percent (increase). Table 4 lists the manufacturers' average and median values of shipments for this category's machinery. A comparison of the 2004 table with the corresponding table for 2003 will show that only minor changes occurred. SHIPMENTS BY TYPE OF BOTTLING LINE MACHINERY The projected estimates of bottling line machinery shipments in total and by the two principal machinery sub-categories are presented in Table 5 according to five sets of criteria. Shipments of conveyors and accumulators ($226 million) accounted by far for the larger share of the total dollar volume as they traditionally have. The other sub-category consisting of bottle placing, feeding, rinsing, washing, collating, unscrambling, and all other function-related machinery was responsible for $78 million of the total. Although installations of conveyors and accumulators generally go hand in hand with those of feeders, placers, unscramblers and related machinery, the past three years have produced a divergence in growth between the two sub-categories. With respect to the unit-shipments totals, it is important to point out as in prior years that the data represent the approximate number of systems reported billed in Moreover, the unit numbers can fluctuate independently of the dollar values from one year to the next, often without any reason behind divergence. The conveyor and feeding, placing, orienting, et al machinery categories are the most difficult to define in terms of individual units owing to the broad diversity and sizes of systems that are sold; therefore, they are meaningful more as indicators of the annual unit vol-

16 36 11th Annual Packaging Machinery Shipments & Outlook Study ume rather than as precise measures of output. And in that respect, the data indicate that a larger number of more expensive systems were billed in 2004 than in 2003 exactly the reverse of what occurred in Based on the data, there were fewer total systems shipped and billed in 2004 than in the prior year; however, the average system carried a higher price tag than in The average bottling line conveyor/ accumulator system in 2004 was billed at $129,513, up sharply from $72,338 in 2003, but closer to the 2002 average of $124,044. Similarly, the average feeding, placing, orienting, system rose from $66,231 in 2003 to $76,471 in 2004, but still not back to the $90,700 level recorded in As noted in prior reports, there had been a concern that the true value of bottling line machinery shipments may have been understated because of the possibility that some respondents may have been lumping all conveying, feeding, placing, machinery, etc. (including some bottling lines) into the conveying machinery category rather than into bottling line machinery. In that regard, efforts to limit misreporting are being conducted on an ongoing basis through comprehensive reviews of the data and by follow-up contacts with respondents. TRENDS, FACTORS, AND DEVELOPMENTS AFFECTING THE MARKET Several trends, factors and developments in 2004 worked collectively to produce the year's results. Appearing in order of relative importance, the following are believed to have exerted the most impact. Positive Trends, Factors and Developments A. Higher volume of exports As indicated earlier, U.S. exports of bottling line machinery increased by more than 52 percent in 2004, largely reflecting the favorable U.S. Dollar exchange rate as well as the build-up of new bottling line facilities in developing countries. The increase came on top of a +8.3 percent gain in 2003 and a +50 percent surge in "The lower US Dollar versus the Euro and Pound made the difference in our exports." "Stronger marketing efforts and lower Dollar allowed us to make inroads in Latin America." B. Demand for larger systems and more expensive machines Several manufacturers attributed their higher value of shipments in 2004 to sales of larger, more expensive systems, which translated into a higher average billing per unit sold. The increase resulted from the trend among customers to seek single-source suppliers for their bottling operations as well as to require custom options on their equipment, which also added to the cost of the systems ordered. "Our unit quantity of shipments actually decreased in 2004, but because customers ordered larger, more expensive machines, our billings were up for the year." "A lot of customers are seeking single-source OEMs, which helped us because of our broad capabilities." C. Continued high level of machinery upgrade activity As witnessed in 2003, a large proportion of the 2004 shipment dollar volume was generated by the replacement of older bottle conveying, feeding and related equipment for the purpose of improving efficiency and productivity. This factor continues to be prominent in domestic demand especially, as reflected in customers' supporting comments provided for the PMMI Purchasing Plans Study. "Because the market improved last year, customers were able to replace machinery and systems they weren't able to before." D. Significant derived demand from installation of new filling machines Consistent with the effects of a recent trend, end-users again found it necessary to replace existing bottling line conveyors and related machinery with a new generation of conveyors capable of accommodating the higher speeds and other related requirements of new fillers. The new units, which replaced older standalone fillers and monoblocs, are rated over 50 percent faster than those of just a few years ago. Please note that U.S. shipments of liquid filling machinery surged by percent in E. Steady flow of new machinery introductions Several of the machinery manufacturers attributed their increased billings in 2004 to the introduction of new machinery models and systems during the year. In addition to improvements and innovations featuring the advantages of faster speed capabilities as well as better control capabilities (expanded plc and variable frequency device control), better wash down capabilities, gentler product handling, among many others, the new

17 Bottling Line Machinery 37 TABLE 5 U.S Bottling Line Machinery Shipments, Exports, And Order Backlog By Type Of Machinery PERCENT CHANGE TOTAL Industry In $ Shipments Unit U.S. Order BACKLOG 2004 Shipments 2004 Vs Shipments EXPORTS 12/31/04 Machinery ($ Millions) (%) (#) ($ Millions) ($ Millions) Bottling Line Conveyors and Accumulators , Bottle Placing, Feeding, Rinsing, Washing, Collating, Unscrambling, and All Other Related Machinery , Total Category , introductions also included lower cost "economy" models, and smaller footprint configurations. "We expanded our line of machinery, replaced some with better technology, and stepped up our marketing efforts." F. The Investment Tax Credit's impact on domestic demand The stimulus of accelerated depreciation tax write-offs for new equipment was cited by a few manufacturers as a factor behind their higher 2004 shipments. G. Trend toward alternative containers A portion of the bottling-line machinery replacement activity in 2004 was due to conversions made necessary to accommodate different container materials, types, configurations, and sizes. H. Pack Expo Several manufacturers credited their higher shipments in 2004 to business generated at Pack Expo in November Negative Trends, Factors, and Developments A. Softening of domestic demand As the data clearly indicate, U.S. domestic demand for bottling line machinery softened for a second consecutive year following an extended period of growth. B. Void left by completion of several very large projects Though not universally the case, machinery manufacturers selectively faced a temporary decline in domestic demand as a result of major project completions by certain of the large producers carbonated beverage, energy drink, and bottled water in particular. C. Intensifying competition from lower-priced machinery In addition to market forces generating demand for higher-priced machinery (discussed earlier), bottling-line equipment shipments were also affected by an influx of lower-priced machinery offerings at the opposite end of the spectrum. The lower prices were caused by a combination of greater pressure in price negotiations by end-users and the introduction of lower-priced machinery lines by U.S. manufacturers as well as increased penetration by imports. D. Continued negative impact of used and rebuilt system sales at the expense of new machinery shipments. BOTTLING LINE MACHINERY SHIPMENTS BY TYPE OF CUSTOMER Approximately 89 percent of the bottling line machinery shipments in 2004 were made directly to end-users, either via company-based sales representatives or manufacturers' representatives, up from 85 percent in 2003, but still down from 90 percent in The amount attributed to others (including other manufacturers, engineering contractors, and systems integrators) amounted to eight percent of the total (down from nine percent in 2003). The volume channeled through distributors represented approximately three percent.

18 38 11th Annual Packaging Machinery Shipments & Outlook Study FIGURE 8 U.S BOTTLING LINE MACHINERY SHIPMENTS BY MARKET SEGMENT (Percent of Total Dollar Value) Household Chemicals 2% Foods 9% Toiletries & Cosmetics 4% Beverages 73% Pharmaceuticals 12% FIGURE 9 HISTORICAL TREND OF MARKET SEGMENT BREAKDOWN FOR U.S. BOTTLING LINE MACHINERY (As a Percentage of Total Dollar Shipments) 90% Percent of Total Shipments 80% 70% 60% 50% 40% 30% 20% 10% Foods Household Chemicals Toiletries & Cosmetics Pharmaceuticals Beverages Other Chemicals 0%

19 Bottling Line Machinery 39 BOTTLING LINE MACHINERY SHIPMENTS BY MARKET SEGMENT The pie chart of Figure 8 presents a breakdown of the industry's 2004 bottling line machinery shipments by market segment based on the study's data, and the line chart of Figure 9 traces the most recent six-year history of the industry's market segment breakdown. While very little changed short term in the market segment composition from 2003 to 2004, there appears nonetheless a trend that may be worth noting. Owing to the nature of bottling line machinery, the beverage products segment has naturally maintained a position of overwhelming dominance as the leading customer for bottling line machinery. But as Figure 8 illustrates, its share of contribution to the shipments total in 2004 declined to 73 percent from 75 percent in 2003 and from 79 percent in the prior year. By the same token, however, its longer term position has been generally positive, reflecting its rise from 62 percent in 1999, with cyclical ups and downs in between. Conversely, the pharmaceutical products segment, which was responsible for 12 percent of the total in 2004, up from 11 percent in 2003, appears to be growing in importance, while food product applications (9% in 2004 and 2003) have tended to hold relatively steady during the period within a narrow range. BOTTLING LINE MACHINERY FORECASTS U.S. shipments of bottling line machinery are forecast to grow at an average annual rate of 3.3 percent over the next three years from an estimated $304 million in 2004, to approximately $335 million by 2007 in constant 2004 dollars. As the bar chart of Figure 10 illustrates, the bulk of the gain will be recorded in The outlook is based largely on the following key expectations and assumptions. (Please refer back to the discussion of trends and developments for elaboration on certain forecast points.) The Case for Growth A. Continuation of replacement activity consistent with technological advances B. Predicted growth of the U.S. economy Please see "Macroeconomic Assumptions" in Executive Summary FIGURE 10 FORECAST OF U.S. BOTTLING LINE MACHINERY SHIPMENTS (Constant 2004 Dollars) $ Millions

20 40 11th Annual Packaging Machinery Shipments & Outlook Study C. Projected strong demand for larger systems and more expensive machines D. Further derived demand from installation of new, faster filling machines E. Additional switching to alternative containers prompting replacements and additions of bottling lines F. Undiminished flow of new food and beverage product and SKU introductions G. Improvement in pharmaceutical market segment demand H. Sustained strength of the dynamic beverage growth sectors I. Expected resurgence in export volume later in the period The principal caveat to the sustainability of these forecasts is naturally recognition of the ever-present potential for exogenous or unforeseen developments that could derail economic growth and destabilize confidence. Aside from that contingency, demand for bottling line machinery could be limited by the following other potential detriments to growth: A. Weaker than expected economic growth B. Higher than anticipated impact of low cost imports and used machines on new machinery sales C. Accelerated consolidation of the food and beverage industries D. Slower than predicted growth of foreign economies SURVEY PARTICIPATION AND COMPANY SECONDARY RESEARCH Table 6 summarizes the participation and methodology of data collection for the survey phase of the study. Potential Growth-Limiting Factors TABLE 6 Survey Participation And Company Secondary Research (Bottling Line Machinery Manufacturers) Status Number of Companies PMMI Members Completed The Questionnaire 30 Company Shipment Estimates Developed Through Secondary Research 15 Total Companies 45

21 Capping Machinery 41 CAPPING, OVERCAPPING, LIDDING, AND RELATED SEALING MACHINERY (Excluding Associated Filling, Capping, and Sealing Machinery) Definition: Machinery used for capping, overcapping, lidding, and sealing bottles, jars, cans, cups, paperboard canisters, and other related containers. Segmented by: Capping, Lidding, and Sealing Machinery for Bottles; and Capping, Overcapping, Lidding, and Sealing Machinery for All Other Containers. The category excludes cappers furnished as part of filler-capper monoblocs, which are reported under the Liquid-Product Filling Machinery category. 10-YEAR GROWTH TREND 2.9% Share of Total Industry $ Volume DOUBLE-DIGIT GAIN IN 2004 CAPPING MACHINERY SHIPMENTS U.S. shipments of capping, lidding, and related sealing machinery (excluding monoblocs) increased for a third consecutive year, climaxed by a solid double-digit increase. The growth, which was pegged at percent, brought the level of volume to an estimated $157 million in 2004, up from $138 million in the prior year. As also witnessed in 2003, most of the upside momentum was generated by a sharp increase in shipments to the U.S. domestic market. In fact, the volume attributed to domestic market customers grew by percent to $137 million, following a +5.3 percent rise in 2003, while exports edged up by +5.3 percent after a modest decline in Exports as a percent of total shipments fell to 12.7 percent from 13.8 percent in 2003 and from 15 percent The order backlog at year-end stood at $51 million, which was equivalent to 32.5 percent of total 2004 shipments, down sharply from 43 percent in In 2004, U.S. manufacturers of capping/lidding machinery extended to nine of the past 10 years their pattern of shipment growth that has run in close step with the direction of the packaging machinery industry as a whole (Figure 11). The correlation no doubt reflects the dynamic and ever-evolving roles that capping and lidding functions have assumed in modern packaging operations. In addition to the general cyclical forces that have exerted both positive and negative pressures on the packaging industry's yearly output, the growth and decline of capping/lidding machinery shipments have been particularly influenced by regulations, needs for safety and tamper-evident packaging as well as by sporadic innovations that caused sharp movements in capping/ lidding machinery demand. In late 1996 and through 1997, for example, end-users were scrambling to meet Consumer Product Safety Commission regulations concerning senior friendly and childproof closures due January Irrespective of its relatively healthy growth history, however, the standalone capping machinery category has been undergoing an erosion of annual shipment dollar value unrelated to demand for the function of capping. The loss is attributed to the increase in demand for monobloc filler-cappers, at the expense of standalone capping machinery. Note that shipments of monoblocs are reported under the liquid filling machinery category. While the preponderant share of monobloc sales was formerly concentrated in high-speed beer and carbonated beverage bottling applications, the dollar volume now also includes a larger percentage of other capping applications, such as bottled water, juices and others, thereby displacing that portion of the annual total formerly maintained by self-contained capping machinery. It is important to point out, however, that the classification of cappers as part of monoblocs can

22 42 11th Annual Packaging Machinery Shipments & Outlook Study FIGURE 11 ANNUAL GROWTH OF U.S. CAPPING MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY SHIPMENT GROWTH % 14% 12% 10% 8% 6% 4% 2% % Change 0% -2% -4% -6% -8% -10% -12% -14% -16% U.S. Capping Machinery Shipments Total U.S. Packaging Machinery Shipments often be subject to different interpretations depending upon how individual manufacturers view the application. BASIS FOR THE DATA THE SURVEY'S RESULTS Shipment data and/or estimates for 43 companies identified as manufacturers of capping and lidding machinery (as defined) compiled in conjunction with this study formed the basis for the dollar-value projections. A summary of the survey's composition is provided in Table 9 at the end of this section. Total shipments attributed to the 43 companies were estimated to be $136 million, of which 29 participating PMMI members represented $85.7 million. The favorable growth results for capping/lidding machinery shipments in 2004 are exemplified by the horizontal bar chart of Figure 12, which projects the annual increase/decrease/no-change breakdowns reported by the sample. As shown, 69 percent of the companies reported that total capping machinery shipments grew in 2004 versus 57 percent in Only 24 percent reported a decline and seven percent no change. Moreover, the increase-decrease numbers for each of the two sub-categories revealed decidedly positive breadth as well. The data for total shipments ranged from a low of -100 percent (decrease to $0 shipments) to a high of percent (increase) for a manufacturer whose 2003 shipments were slightly less than $100 thousand. Table 7 presents data on the average and median dollar values of manufacturers' shipments for the total machinery category as well as for the two sub-categories. The averages per manufacturer of cappers for bottle applications increased for a third consecutive year to $3.112 million, from $2.964 million in 2003 and $1.724 million in Conversely, the average for the "all other" sub-category declined for a third in a row to $1.676 million in 2004 from $1.775 million in 2003 and $2.049 million in The large difference between the average and median for both the bottle capping/lidding and all other container capping/lidding is reflective of the effect that several large manufacturers had on the totals.

23 Capping Machinery 43 TABLE 7 Average And Median Dollar Values Of 2004 Capping Machinery Shipments (Shipments Per Manufacturer Based On Survey Data) 2004 Shipments Machinery Average Median Total Capping, Lidding, and Sealing Machinery Capping, Lidding, Sealing, Machinery for Bottles Capping, Lidding, Sealing Machinery for All Other Containers US$ Millions SHIPMENTS BY TYPE OF MACHINERY The 2004 shipments data by the two principal types of capping/lidding and sealing application are broken out in Table 8: (A) for bottles and (B) for all other containers. While shipments of both sub-categories A and B have been on the rise, the aggregate dollar volume of the "all other container" (B) has overtaken that of A, a development that appears to suggest a trend in the making. For until recently, capping machinery designed exclusively for bottles had traditionally accounted for the larger share of the total capping machinery dollar volume. But based on an estimated $76 million in shipments for 2004, bottle cappers accounted for 48 percent of the total, while machinery for all-other containers held the slightly larger 52 percent share at $81 million. Although the market-share spread between the two subcategories appears to have stabilized for now (48%:52% in 2003 as well), the underlying trend will likely resume, albeit very gradually. Three primary factors have been responsible for the shift. Foremost, there has been a sharp increase in the number of applications for capping and lidding of alternative type containers such as canisters, jars, and single-serve cups of food products in line with several consumer packaging trends and innovations; but most significantly, the increasing focus on product security and tamper evidence protection has spawned nearly a separate industry within the industry to satisfy the newly created demand. Finally, the continuing trend toward more bottle-related cappers sold as part of monobloc arrangements, detracts from the dollar volume attributed to stand alone cappers. Discussion of the monobloc sub-category is presented in the section dealing with liquid filling machinery. FIGURE 12 PERCENT OF COMPANIES REPORTING AN INCREASE, DECREASE, AND NO CHANGE IN CAPPING MACHINERY SHIPMENTS 2004 VERSUS 2003 TOTAL Capping, Lidding, and Sealing Machinery 7% 24% 69% 74% Machinery for Bottles 5% 21% % Reporting Increase Machinery for All Other Containers 21% 29% 50% % Reporting Decrease % Reporting No Change 0% 10% 20% 30% 40% 50% 60% 70% 80%

24 44 11th Annual Packaging Machinery Shipments & Outlook Study TABLE 8 U.S Capping, Lidding, And Sealing Machinery Shipments, Exports, And Order Backlog By Type Of Machinery PERCENT CHANGE TOTAL Industry In $ Shipments Unit U.S. Order BACKLOG 2004 Shipments 2004 Vs Shipments EXPORTS 12/31/04 Machinery ($ Millions) (%) (#) ($ Millions) ($ Millions) Capping, Lidding, Sealing Machinery for Bottles Capping, Lidding, Sealing Machinery for All Other Containers , Total Category , TRENDS, FACTORS, AND DEVELOPMENTS AFFECTING THE MARKET The following trends and developments both positive and negative are believed to have exerted the most influence on determining the year's results. Positive Trends, Factors, and Developments A. Favorable economic environment As the data indicate, increased demand from the U.S. domestic market was responsible for most of the growth that occurred in While the principal markets for capping/lidding machinery foods, beverages and pharmaceuticals are typically less affected by economic cycles than other more discretionary-based product markets are, the combined impact of sustained GDP growth and improved market confidence allowed endusers to invest more readily in capital equipment. "Improved business conditions were most responsible for our growth" "Increase in retail sales caused our customers to add machinery." "Customers had more capital project approvals in 2004 than in 2003 because of better business outlook" B. Improved capacity utilization by the U.S. food and beverage industries C. Increase in demand from the personal care and pharmaceutical market segments As Figure 13 indicates, pharmaceutical market applications were responsible for 22 percent of the total shipment dollar volume in 2004 (up from 14 percent in 2003) and personal care products applications generated 11 percent (up from seven percent in 2003). D. The market's ongoing search for innovative cap and closure systems Capping and lidding machinery shipments benefited in 2004 as they have in recent years from the ongoing trend by end-users to adapt new versions and configurations of caps and closures to their containers, which often require the installation of accommodative machinery. In addition to cost savings that the changes may offer to packagers, they are generally undertaken to provide customers with more convenience and ease of opening and closing. Included among the more common alternatives are: the flip seal crown, tamper-evident twist tops for aseptic containers, twist caps for gable top and stand up pouch, squeeze and turn child-resistant closures, senior-friendly closures, top-squeeze closures, more screw caps and synthetic corks for wine, and pump applicators. "We received a big order from a beverage company which converted to a different closure." "Bottle capping is going in a new direction away from traditional capping."