David S. Smith bets on growth in packaging
The firm bought a 75% share in Kieleckie Zaklady Wyrobow Papierowych SA (KZWP), a major manufacturer of corrugated board and cardboard boxes. Stuart Russell, corporate services director, described the purchase as "an ideal base for us to expand operations in the Central European area."
The acquisition makes David S. Smith the third foreign company to build or acquire package manufacturing facilities in Poland, with at least one other multinational waiting in the wings. Neither of the other companies is directly involved in corrugated packaging at this time, but both are parts of major international operations.
Already the UK's leading manufacturer of corrugated case materials, the blank material used for producing printed boxes, corrugated cardboard and Europe's number-one producer of heavy-duty, triple-walled corrugated cardboard and corrugated plastic, Smith plans to use KZWP's strong position in domestic packaging as a base for what Peter Stern, director of Smith's corrugated division, called a "three-pronged" approach to the underdeveloped market.
This strategy calls for expansion of printed corrugated packaging for consumer items - taking advantage of Smith's existing multinational western-based customers; supplying the expanding industrial packaging market with its heavy-duty corrugated product; and moving into the "sheet-feeding" industry, supplying sheets of corrugated packaging material to printers and finishers, who make the final product.
"This is a big market in the UK," Stern said.
KZWP dominates the domestic litho-printed packaging market in Poland, with 85% of the domestic market, according to Wladyslaw Anton, the plant's managing director. Its total output of 49,000 tons last year also accounted for 30% of the domestic corrugated market. The plant's 1994 turnover was $31.8 million (zl. 86.9 million), reporting a net profit of $3.7 million. Located in Kielce, 180 kilometers south of Warsaw, the plant operates at about 70% efficiency, Anton said.
$12 million remake
Under terms of its agreement with the Privatization Ministry, David S. Smith is pledged to invest $12 million in capital improvements to KZWP over the next three years.
Russell said these will be used to improve the corrugating machinery "to produce a better quality product, recognizing that KZWP will be looking at wider international markets for its product." New equipment will allow the plant to produce its heavy-duty Tri-Wall corrugated, which has replaced wood and fiberboard in many industrial uses, according to company officials.
"We have quite extensive contacts with international companies (such as) Cadbury's, Procter & Gamble, Unilever," Russell said. "Many of them are expanding into Central Europe and therefore we can service their needs in Poland and the region." Inadequacies in the existing manufacturing and distribution system lead many multinationals to import packaging from the West, he added.
A growing field
Rentsch Polska, part of the Rentsch Group, became the first foreign package manufacturer in Poland, setting up a greenfield plant in *odz in 1994. The company's printing and production operation is "highly concentrated," according to Jerzy Czubak, managing director. Czubak said Rentsch has cornered the market for producing hard - or "hinged" - cigarette boxes in Poland and does not intend to expand further at this time. In January, Rentsch, a Swiss group, was acquired by Australian-based Amocor, a packaging giant with 150 companies and an annual turnover of $5 billion, Czubak said.
In March, Cofinec SA, a French-based holding company, made a $25 million entry into Poland's packaging market, announcing plans to build a greenfield plant near Warsaw and plans to bid for major international customers, like Unilever, McDonald's and NestlU. Cofinec's plant is still under construction, but Stephen Frater, the firm's CEO, said the company already generates a $10 million turnover here, supplying imported flexible packaging for such products as Chio Chips, Mars candy bars and Wedel candies. Frater said that Smith's acquisition did not directly affect his company's business. A third Austria-based multinational packaging giant is also poised to enter the Polish packaging market.
Growth faster than GDP
Acquisition of the Kielce plant will add approximately 10% to David S. Smith's current output of 450,000 tons of corrugated board. Though not so visible as boxes for finished consumer products, corrugated industrial packaging offers an enormous field for growth, especially in the Polish and regional markets, Stern said.
"In a mature market, the demand for corrugated would expand along with the GDP, but here, because it is not an advanced economy, it will expand in advance of GDP," he said. Stern said the UK, with 58 million inhabitants, uses roughly 2 million tons of corrugated board a year; France, where David S. Smith also owns packaging- and paper-making facilities, uses 2.5 million tons a year, for roughly the same size population. Poland's 39 million inhabitants, by contrast, only used 200,000 tons of corrugated in 1994.
Under terms of the privatization law, David S. Smith will offer up to 20% of KZWP shares to employees on a preferential basis, with the company offering to buy these shares on the same terms as its initial purchase of 75%. The remaining 5% will remain in the hands of the State Treasury as part of its reprivatization reserve. The agreement also stipulates that Smith retain all 1,100 employees for 27 months.
David S. Smith (Holdings) PLC reported after-tax profits of $60 million (u 37.5 million) on earnings of $1.2 billion (u 782.8 million) for the year ending April 30, 1994. The current year's earnings are due next week.
The acquisition makes David S. Smith the third foreign company to build or acquire package manufacturing facilities in Poland, with at least one other multinational waiting in the wings. Neither of the other companies is directly involved in corrugated packaging at this time, but both are parts of major international operations.
Already the UK's leading manufacturer of corrugated case materials, the blank material used for producing printed boxes, corrugated cardboard and Europe's number-one producer of heavy-duty, triple-walled corrugated cardboard and corrugated plastic, Smith plans to use KZWP's strong position in domestic packaging as a base for what Peter Stern, director of Smith's corrugated division, called a "three-pronged" approach to the underdeveloped market.
This strategy calls for expansion of printed corrugated packaging for consumer items - taking advantage of Smith's existing multinational western-based customers; supplying the expanding industrial packaging market with its heavy-duty corrugated product; and moving into the "sheet-feeding" industry, supplying sheets of corrugated packaging material to printers and finishers, who make the final product.
"This is a big market in the UK," Stern said.
KZWP dominates the domestic litho-printed packaging market in Poland, with 85% of the domestic market, according to Wladyslaw Anton, the plant's managing director. Its total output of 49,000 tons last year also accounted for 30% of the domestic corrugated market. The plant's 1994 turnover was $31.8 million (zl. 86.9 million), reporting a net profit of $3.7 million. Located in Kielce, 180 kilometers south of Warsaw, the plant operates at about 70% efficiency, Anton said.
$12 million remake
Under terms of its agreement with the Privatization Ministry, David S. Smith is pledged to invest $12 million in capital improvements to KZWP over the next three years.
Russell said these will be used to improve the corrugating machinery "to produce a better quality product, recognizing that KZWP will be looking at wider international markets for its product." New equipment will allow the plant to produce its heavy-duty Tri-Wall corrugated, which has replaced wood and fiberboard in many industrial uses, according to company officials.
"We have quite extensive contacts with international companies (such as) Cadbury's, Procter & Gamble, Unilever," Russell said. "Many of them are expanding into Central Europe and therefore we can service their needs in Poland and the region." Inadequacies in the existing manufacturing and distribution system lead many multinationals to import packaging from the West, he added.
A growing field
Rentsch Polska, part of the Rentsch Group, became the first foreign package manufacturer in Poland, setting up a greenfield plant in *odz in 1994. The company's printing and production operation is "highly concentrated," according to Jerzy Czubak, managing director. Czubak said Rentsch has cornered the market for producing hard - or "hinged" - cigarette boxes in Poland and does not intend to expand further at this time. In January, Rentsch, a Swiss group, was acquired by Australian-based Amocor, a packaging giant with 150 companies and an annual turnover of $5 billion, Czubak said.
In March, Cofinec SA, a French-based holding company, made a $25 million entry into Poland's packaging market, announcing plans to build a greenfield plant near Warsaw and plans to bid for major international customers, like Unilever, McDonald's and NestlU. Cofinec's plant is still under construction, but Stephen Frater, the firm's CEO, said the company already generates a $10 million turnover here, supplying imported flexible packaging for such products as Chio Chips, Mars candy bars and Wedel candies. Frater said that Smith's acquisition did not directly affect his company's business. A third Austria-based multinational packaging giant is also poised to enter the Polish packaging market.
Growth faster than GDP
Acquisition of the Kielce plant will add approximately 10% to David S. Smith's current output of 450,000 tons of corrugated board. Though not so visible as boxes for finished consumer products, corrugated industrial packaging offers an enormous field for growth, especially in the Polish and regional markets, Stern said.
"In a mature market, the demand for corrugated would expand along with the GDP, but here, because it is not an advanced economy, it will expand in advance of GDP," he said. Stern said the UK, with 58 million inhabitants, uses roughly 2 million tons of corrugated board a year; France, where David S. Smith also owns packaging- and paper-making facilities, uses 2.5 million tons a year, for roughly the same size population. Poland's 39 million inhabitants, by contrast, only used 200,000 tons of corrugated in 1994.
Under terms of the privatization law, David S. Smith will offer up to 20% of KZWP shares to employees on a preferential basis, with the company offering to buy these shares on the same terms as its initial purchase of 75%. The remaining 5% will remain in the hands of the State Treasury as part of its reprivatization reserve. The agreement also stipulates that Smith retain all 1,100 employees for 27 months.
David S. Smith (Holdings) PLC reported after-tax profits of $60 million (u 37.5 million) on earnings of $1.2 billion (u 782.8 million) for the year ending April 30, 1994. The current year's earnings are due next week.
