Flexible packaging printing in Russia

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Stephen Stewart
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1 Flexible packaging printing in Russia 19 October, 2009 Slide 1

2 Introduction AF Novgorod The Market Market Dynamics Players Slide 2

3 Introduction Slide 3

4 Amcor Flexibles Novgorod Slide 4

5 Amcor s participation and commitment to Russian market Amcor has been present in the Russian market since late 90 s Our main product groups are Folding Cartons and Flexibles. Folding Cartons Initially exported from Poland to Russia in the early 90 s in Folding Carton production Committed to build the Folding Carton factory in Russia in Flexible Packaging Commenced exporting to Russia in 2000 from our new Polish flexible packaging plant We committed to build the Flexibles factory in Russia in 2004 Commenced local production in August 2005

6 AMCOR FLEXIBLES Novgorod Amcor Flexibles has invested in a new company in Novgorod, between Moscow and St. Petersburg to become a leading international converter of flexible packaging in Russia. The company has a 10 hectare green field site alongside sister company Amcor Rentsch carton plant. Two gravure presses Laminator Hot melt coater Four slitters A guillotine and a sheet-cutter

Petersburg Supportive local authorities AMCOR Rentsch

7 Location St. Petersburg Between two centers Moscow & St. Petersburg Lower cost than Moscow & St. Petersburg Supportive local authorities AMCOR Rentsch Novgorod neighborhood & synergy St. Petersburg NOVGOROD Veliky Novgorod Moscow Moscow

8 The Market Slide 8

9 Flexible Packaging Market Trends over the past 10 years.. Increase in GDP Growth -> increase in FMCG packaged goods consumption -> increase in flexible packaging market in Russia. Increase in total number of suppliers and capacity in the market. Entrance of a number of international flexible packaging suppliers into the market, mainly to serve gravure printed flexible packaging. Demand for flexible packaging has become more sophisticated in Russia and FMCG companies increasingly look for more innovation. Reduction of imports of flexible packaging.

10 Evolution of the Russian Flexible Packaging Market Market characteristics of flexible packaging: The Russian market is still developing its own character, in contrast to Western European markets with a longer history and where market dynamics are more static. Quality improvement and enhanced graphics have been driven by imports and by benchmarks set in Western Europe for the most part. Against the background of excess capacity in Western Europe, Russia was a prosperous market for export from other countries. End use customers have created demand for quality products for which they are ready to pay an appropriate price (give a flex packaged goods example of this?). At present the crisis has stopped the development of this general tendency with a far greater focus on cost reduction and lower cost packaging.

11 Factors influencing market development 1. Raw material market situation This is one of key factors influencing both quality and cost of the product (packaging). According recent journal articles by a number of authors, raw material makes up to % of the price of flexible packaging. The situation in the Russian market is further analyzed on the following slide. 2. Scientific, Technological and Innovation developments in the field of packaging production The use of new technologies and innovation in packaging production is one of the key factors in developing the sophistication of the market as well as potentially its total volume where packaging substitution or new application takes place. 3. Level of demand The current economic crisis has slowed down the previous rapid growth in FMCG consumption and hence in demand for flexible packaging.

12 Raw Material market situation The raw material market situation is characterized by the following parameters: 1. The Russian chemical industry has been heavily affected by the crisis as with many other branches of industry. 2. The Russian producers of resin and film for the home market do not reduce prices much below import parity but do not appear to have upgraded product quality and consistency to match imports, which holds back potential additional demand currently met by imports. 3. Despite falling demand caused by the current economic crisis, some foreign RM producers have forced up local prices (RUB) for their products, which has made flexible packaging using imported materials more expensive. 4. Without Russian RM producers investing in additional capacity of adequate quality for market growth demand, future growth in the total flexible packaging market will require higher imports of raw materials. 5. Price movements in energy and commodities, as well as packaging material demand, have a major impact on flexible packaging raw material pricing. RM pricing in 2008 and 2009 have seen major cyclical movements occur.

13 Scientific and technological developments in the field of packaging production Is all about - Differentiation It s convenience - Easy open, Re-Closeable, Stackable It s consumer appealing - Design, Printing It s functionality - Heat resistant, Low temperature

14 Innovative Solutions for Russian market Amcor Serial Coding Amcor SerialCoding is ideal for games and promotions like ours. This technology delivered by Amcor in Russia helped us to improve customer loyalty and allowed us to track sales and consumption in specific regions. Due to this project we were able to maintain our sales level in a period of decreasing demand for snacks Mikhail Senikov, Director of Marketing and Development at Sibirsky Bereg.

15 Innovative Solutions for Russian market Amcor TwistAll Protective Our Halva candies are sold individually. It is very important to us to ensure a reliable protection of the sweets during production, distribution and sales. Amcor's team in Russia recommended their TwistAll Protective wrapper as the ideal solution. Amcor TwistAll Protective is sealed for protection and also allows mixing of the three different product flavours thanks to its superior barrier performance Rot Front's management team.

Sustainable Solutions Amcor NatuerPlus is a

packaging a wide range of products including

16 Sustainable Solutions Amcor NatuerPlus is a range of recyclable, renewable, biodegradable and compostable products. Amcor NatuerPlus products are suitable for packaging a wide range of products including fresh produce, frozen foods, snacks, confectionery, bakery etc. Slide 16

17 SWOT Analysis on Russian Market for Flexible Packaging Producers STRENGTHS: WEAKNESSES: Vast market (~140 mln people) Strong growth potential in economy About 50% of consumers expenditures are expenditures on food, beverages etc Developing economy -> Middle class growth -> Growth of consumer spending Bureaucracy, non-transparency (86th place by Transparency International Survey) Regulations, high entry costs Immature infrastructure Income disparities are extremely wide (poorest 10% of the population receive only 2% of national income) OPPORTUNITIES: THREATS: Fast Russian market s growth potential Big potential of flexible packaging market WTO ascension Development of domestic production (labor force educated and relative low cost) Rapid growth of retail chains Regional expansion Improving living standards Minimization of costs to the customers, reducing of packaging budget in period of credit crunch Oil exports / Commodity imports dependent economy High percentage of grey economy

18 Gravure and Flexo Market Analysts of the Russian flexible packaging market vary in their assessments of the total volume and estimates range from 0.3 to 1.0 billion. Eurozone impact: Russian Ruble devaluation of 30% against Euro reduced imports significantly Slide 18

19 The Market Dynamics Slide 19

20 Markets Two key markets: Rotogravure printing Flexographic printing Allocation of market shares in volume terms (average expert evaluation)

21 Markets for print technology Flexographic printing Developed substantially as earliest local suppliers of flexible packaging. Mainly Russian producers in this market owing to lower investment costs and demand from Russian FMCG companies. No significant imports into Russian. Rotogravure printing More recent growth of this technology in the market for flexible packaging. Driven by increasing demand for graphic effects, close tolerances on colour, graphic standards set by by International FMCG companies. Supply still partially covered by import to Russia

22 Rotogravure market characteristics Growth in demand for rotogravure printed packaging in Russia has largely been driven by International FMCG companies establishing manufacturing facilities in Russia. This process has been most noticeable in the past 10 years. The factors influencing the development of rotogravure printing Higher cost price per unit of packaging generally. Tooling and manufacturing costs generally higher than flexographic. More labour and capital cost intensive than equivalent output in flexographic printing. Lack of experience in rotogravure printing manufacturing amongst Russian printing companies. Imports from Europe continue to meet part of demand. Development in recent years: Significant market growth in volume and diversity. Supply growth through an increase in the number of gravure printers. Increased competition in FMCG end-use markets resulting in increased demand for rotogravure.

23 Flexographic market characteristics The flexographic printing market for packaging has enjoyed strong development from the start of the industry in Russia. The factors influencing the development of flexographic printing Graphic standards that meet the needs of a major proportion of total flexible packaging market. Lower cost per unit of packaging generally. Mobility ease of physical transfer of equipment when required. Many of the suppliers in this market have high-quality equipment and continue to support a high level of development of flexography in Russia. Development in recent years: Technical development of flexographic machine design and construction Increase in the number of flexography producers.

24 Players Slide 24

25 Suppliers in the Russian Market rotogravure printing flexographic printing % Russian Companies International Companies Indicative data above based on the estimate of market size of 0.5 billion RUB

26 Suppliers in the Russian Market Rotogravure Suppliers: 5 major suppliers and a number of other minor or developing suppliers. 3 of 5 major suppliers are international companies. Imported flexible laminates: service the more complex structures for which in most part no local supply exists; or in some cases at lower priced laminates than can be produced locally. Flexographic Suppliers: 4 major suppliers service the market in addition to a very high number of middle and small suppliers. 1 of 4 major suppliers is an international company. No known imported flexographic printed laminates.

27 Thank You Slide 27

COMPANY PHILOSOPHY Technology and flexibility are the words that best represent us. customer SaTiSfacTion is our company s main goal

COMPANY PHILOSOPHY Technology and flexibility are the words that best represent us. customer SaTiSfacTion is our company s main goal f l e x i b l e t e c h n o l o g y THE COMPANY Our company, founded in 1977, began its activities of flexographic printing in Verona and from the very beginning directed production toward the market of