30 2006 Packaging Machinery Shipments & Outlook Study 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. 2.8% Share of Total Industry $ Volume MODEST GAIN IN 2005 CAPPING MACHINERY SHIPMENTS For the fourth consecutive year U.S. shipments of capping, lidding, and related sealing machinery (excluding monoblocs) as a group moved higher; however, the rate of increase was the lowest recorded during the period. With growth of +2.5 percent, the level of volume reached an estimated $161 million in 2005, up from $157 million in the prior year. And as witnessed in both 2004 and 2003, most of the upside move was produced by an increase in shipments to the U.S. domestic market. In fact, the volume attributed to domestic market customers grew by + 4.4 percent to $143 million, following a +15.1 percent spurt in 2004 and a +5.3 percent increase in 2003. Exports as a percent of total shipments fell to 11.1 percent from 12.7 percent in 2004, 13.8 percent in 2003 and from 15 percent 2002. In addition to the heavily weighted input of domestic market shipments, essentially all of the dollar-volume growth came from an increase in the bottle capping/lidding sub-category, since the "all other" sub-category remained unchanged on a year-to-year basis. The order backlog as of 12/31/05 stood at $59 million, which was equivalent to 36.7 percent of total 2005 shipments, up from 32.5 percent in 2004. 11-YEAR GROWTH TREND U.S. manufacturers of capping/lidding machinery continued in 2005 their cyclical pattern of shipment growth that has run in close step with the direction of the packaging machinery industry as a whole during 10 of the past 11 years (Figure 11). While the similarity clearly reflects the importance of capping and lidding functions in modern packaging operations, the fact that growth of capping/lidding machinery shipments has generally outpaced that of the aggregate industry during most of the up-moves shows that the category has also benefited from dynamic forces specific to its packaging role. For 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 uniquely 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 late1996 and through 1997, for example, end-users were scrambling to meet Consumer Product Safety Commission regulations concerning senior friendly and childproof closures due January 1998. The sense of urgency driving demand for more effective and tamper-proof capping and lidding was further advanced by increasing concerns about public safety following 9/11. Irrespective of its relatively healthy growth history, the standalone capping machinery category has been
Capping Machinery 31 FIGURE 11 ANNUAL GROWTH OF U.S. CAPPING MACHINERY SHIPMENTS COMPARED WITH TOTAL U.S. PACKAGING MACHINERY SHIPMENT GROWTH 1995-2005 16% 14% 12% 10% 8% 6% 4% 2% % Change 0% -2% -4% -6% -8% -10% -12% -14% -16% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 U.S. Capping Machinery Shipments Total U.S. Packaging Machinery Shipments undergoing an erosion of business 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 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 $138 million, of which 27 participating PMMI members represented $54.7million. The horizontal bar chart of Figure 12 projecting the annual increase/decrease/no-change breakdowns reported by the sample, offers a surprisingly positive combination of results across the board despite the fact that net shipments were up for one sub-segment and unchanged for the other. As shown, 52 percent of the companies reported that total capping machinery shipments grew in 2005, while 37 percent reported a decline and 11 percent no change. The data for total shipments ranged from a low of -100 percent (decrease to $0 shipments) to a high of +252.6 percent (increase) for a manufacturer whose 2004 shipments were slightly less than $50 thousand. Table 7 presents data on the average and median dollar values of manufacturers' shipments for the total machinery category as well as for the two sub-categories. While the averages per
32 2006 Packaging Machinery Shipments & Outlook Study TABLE 7 Average And Median Dollar Values Of 2005 Capping Machinery Shipments (Shipments Per Manufacturer Based On Survey Data) 2005 Shipments Machinery Average Median Total Capping, Lidding, and Sealing Machinery 2.024 1.177 Capping, Lidding, Sealing, Machinery for Bottles 2.044 0.618 Capping, Lidding, Sealing Machinery for All Other Containers 1.809 1.167 US$ Millions manufacturer of cappers for bottle applications declined to $2.044 million from $3.112 million in 2004, the average for the "all other" sub-category increased to $1.809 from $1.676 in 2004. SHIPMENTS BY TYPE OF MACHINERY The 2005 shipments data by the two principal types of capping/lidding and sealing applications 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 generally been on the rise for most of the past 11 years, the aggregate dollar volume of "all other containers" (B) has essentially grown at the faster rate (though with few exceptions, e.g., 2005) and overtaken A. Until recently, capping machinery designed exclusively for bottles had traditionally accounted for the larger share of the total capping machinery dollar volume by a large margin. But as the table indicates, as of 2005 the two were nearly equal. Three primary factors have been responsible for the shift: (1) 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; (2) 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; and (3) 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 FIGURE 12 PERCENT OF COMPANIES REPORTING AN INCREASE, DECREASE, AND NO CHANGE IN CAPPING MACHINERY SHIPMENTS 2005 VERSUS 2004 TOTAL Capping, Lidding, and Sealing Machinery 11% 37% 52% % Reporting Increase % Reporting Decrease Machinery for Bottles 35% 53% % Reporting No Change 12% Machinery for All Other Containers 9% 36% 55% 0% 10% 20% 30% 40% 50% 60% 70% 80%
Capping Machinery 33 TABLE 8 U.S. 2005 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 2005 Shipments 2005 Vs. 2004 Shipments EXPORTS 12/31/05 Machinery ($ Millions) (%) (#) ($ Millions) ($ Millions) Capping, Lidding, Sealing Machinery for Bottles 80 +5.3 974 7 32 Capping, Lidding, Sealing Machinery for All Other Containers 81 +0.0 1,462 11 27 Total Category 161 +2.5 2,436 18 59 the section dealing with liquid filling machinery. 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. High rate of conversions to alternative container types and configurations End-users' efforts aimed at product differentiation, packaging cost reduction, or merely product package improvement, have led them to convert to a variety of alternative containers, which in the vast majority of instances, has required a new capping or lidding procedure. "Most of our increase came from two major customers who switched from glass to plastic containers." B. Increase in demand from the food and beverage market segments As figure 13 indicates, food packaging applications were responsible for 35 percent of the total shipment dollar volume in 2005 (up from 29 percent in 2004) and beverage products applications for 34 percent (up from 30 percent in 2004). In effect, demand from the food and beverage industries rose +19.4 percent to an estimated $111 million from $93 million in 2004. Besides the dynamics inherent in food and beverage packaging applications, the volume of business also benefited from steady increases in the market segments' rates of capacity utilization. C. Sustained U.S. economic strength As also witnessed in 2004, increased demand from the U.S. domestic market was responsible for most of the growth that occurred in 2005. While the principal markets for capping/lidding machinery 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 again allowed end-users to invest more readily in capital equipment. D. Higher demand from adoption of new or alternative cap and closure systems The ongoing trend by end-users to adapt new or alternative versions and configurations of caps and closures to their containers stimulated demand for new machinery capable of accommodating the changes. While many existing machines are able to handle the newly adopted cap and/or closure designs with only minor modifications, a large proportion of the older models are unsuitable and therefore require replacement. Consistent with the pattern of recent years, packagers generally undertake changes to provide customers with more convenience and ease of opening and closing. Included among the more common alternatives are: the flip seal crown, spill-proof sports caps for children, tamper-evident
34 2006 Packaging Machinery Shipments & Outlook Study twist tops for aseptic containers, twist caps for gable top and stand up pouch, squeeze and turn child-resistant closures, senior-friendly "no pain" closures, topsqueeze closures, more screw caps and synthetic corks for wine, and pump applicators, among many others. E. Increased capping/lidding machine volume from single-serve container trend Building upon the momentum of a distinct trend emerging over the past several years, demand for capping and lidding machinery in 2005 again benefited from the increasing number of juice drinks, puddings, soups, and dairy products, among many other products, being packaged in single-serve containers. F. Continued impact of market's need for effective and economical tamper evident closures G. Creation of demand through introduction of improved capping and lidding machinery In addition to faster speeds, greater torquing accuracy, and greater use of servos for improved motion control and system integration (including advanced controllers that integrate logic and motion control into the capper system), new systems are being equipped with capabilities for faster changeover and improved diagnostics. "New models with updated technology received well by food industry and gave us most of the growth." H. Derived demand for new, faster cappers/lidders specifically to accommodate higher filling machinery and conveyor speeds I. Replacement of outdated equipment with new capper/lidder models again an important force As repeatedly supported by the PMMI Purchasing Plans Study data, replacement of existing machinery with state-of-the-art technology remained a key element in 2005, driving growth of packaging machinery in general. J. Increasing emphasis on enhancing product shelf life with improved sealing Negative Trends, Factors and Developments A. Cyclical effect of major project completions B. Competition from alternative formats not requiring closures C. Further industry consolidation D. Undiminished competition from lower-priced imports, used machinery and retrofits E. The use of monobloc configurations at the expense of standalone cappers (affecting demand essentially as an accounting function) "Our own used and refurbished machines were our biggest competitor" CAPPING AND LIDDING MACHINERY SHIP- MENTS BY TYPE OF CUSTOMER Approximately 92 percent of U.S. capping and lidding machinery shipments (dollar volume) in 2005 resulted from sales to end-users, nearly the same proportion reported over the past several years. Of the balance, dealers accounted for two percent, down from three percent in 2004, and sales to other machinery manufacturers accounted for six percent, up from five percent in 2004. CAPPING AND LIDDING MACHINERY SHIP- MENTS BY MARKET SEGMENT The pie chart of Figure 13 presents an approximate percentage breakdown of the industry's capping, lidding, and sealing machinery shipments in 2005 by principle end-use market segment, and the corresponding line chart of Figure 14 traces the breakdown history over the past seven years. As illustrated, shipments associated with beverage product applications accounted for 34 percent of the total, up from 30 percent in 2004, but still lower than 46 percent in 2003, which itself had spiked sharply from 31 percent in 2002 and 26 percent in 2001. The wide swing reflects the effect of cyclical project activity in the beverage industry, which can cause large increases and decreases from one year to another. The proportion of shipments attributable to food products applications increased to 35 percent from 29 percent in 2004; however, as the historical figure shows, it had remained relatively steady over the prior few years hovering within the 28-29 percent range (29 percent in 2004). Conversely, the pharmaceutical market segment's share of the capping/lidding machinery purchases fell to 17 percent from 22 percent in 2004, but remained above the 14 percent level recorded in 2003.
Capping Machinery 35 FIGURE 13 U.S. 2005 CAPPING, LIDDING, SEALING MACHINERY SHIPMENTS BY MARKET SEGMENT (Percent of Total Dollar Value) Toiletries, Cosmetics and Other Personal Care 7% Foods 35% Household and Commercial Chemicals and Other 7% Pharmaceuticals 17% Beverages 34% FIGURE 14 HISTORICAL TREND OF MARKET SEGMENT BREAKDOWN FOR U.S. CAPPING, LIDDING, SEALING MACHINERY 1999-2005 (As a Percentage of Total Dollar Shipments) 50% 45% Percentage of Total Shipments 40% 35% 30% 25% 20% 15% 10% 5% Foods Beverages Pharmaceuticals Household/Commercial Chemicals Personal Care 0% 1999 2000 2001 2002 2003 2004 2005
36 2006 Packaging Machinery Shipments & Outlook Study CAPPING AND LIDDING MACHINERY FORECASTS U.S. shipments of capping, lidding, and sealing machinery are forecast to grow at an average annual rate of 2.2 percent over the next three years to a predicted value of $172 million (constant 2005 dollars) by 2008. As Figure 15 indicates, the growth is expected to occur in 2006 and 2008 with a slight downturn in 2007. The following factors both positive and negative will each enter into the predicted outcome. (Please refer to the previous discussion of trends and developments for elaboration on certain forecast points.) The Case for Growth A. Positive, albeit uneven economic growth through the three-year period Please see "Macroeconomic Assumptions" in the Executive Summary. B. Progressive improvement in machinery exports C. Sustained demand for high-speed capping machinery related to the general increase in the speed of filling lines (resulting in replacement of existing slower-speed units) D. Further momentum from shifts to alternative containers and caps and closures E. Continued stimulus from machinery technology innovations, especially featuring servo motor drives F. Sustained heavy influence of marketing trends, including senior friendly and child-resistant caps and closures G. Unabated focus on effective tamper-evident sealing H. Continued expansion of the single-serve container trend I. Steady flow of additional new product- and SKU introductions by the food, beverage, and pharmaceutical industries FIGURE 15 FORECAST OF U.S. CAPPING, LIDDING, SEALING MACHINERY SHIPMENTS 2006-2008 (Constant 2005 Dollars) 180 175 172 $ Millions 170 165 160 161 166 165 155 150 145 140 2005 2006 2007 2008
Capping Machinery 37 Potential Growth-Limiting Factors A. The use of monobloc configurations at the expense of standalone cappers (affecting demand essentially as an accounting function) B. Increased market penetration of lower-cost domestic and imported cappers/lidders C. Further consolidation of the food and beverage industries D. Impact of lower-cost alternatives, e.g., used and rebuilt machinery as well as retrofits SURVEY PARTICIPATION AND COMPANY SECONDARY RESEARCH Table 9 summarizes the participation and associated secondary research in the survey phase of the study. TABLE 9 Survey Participation And Company Secondary Research (Capping And Lidding Machinery Manufacturers) Status Number of Companies PMMI Members Completed The Questionnaire 27 Company Shipment Estimates Developed Through Secondary Research 16 Total Companies 43