Searching for the right balance

By Dieter Bergner

Huhtamaki has agreed to divest the majority of its European rigid plastic consumer goods operations to Sun Capital Partners, Inc., a US-based private investment firm.
While the closing of the transaction is subject to approval by competition authorities, the outcome is obviously what the involved management teams were looking for during the last 24 months. The question came up regarding how this divestment will change the focus of this European based consumer goods packaging business in the future.

Management believes in the huge potential of the business and the reason is our absolute focus on consumer packaging and the company's major strong hold - our personnel.

Keeping the right management overview in place, the management strategy is to trust people at all levels and give them the right space to act responsibly, having the words of Francis Labbe (CEO of former Impress) in mind, who summarised his view to his managers: "Make mistakes - not too many and not too big - but don't be afraid, it proves you are acting".

Decentralisation is the headstone of our organisation model and our daily objective is to empower people. Some analysts believe that one way to develop the consumer packaging segment is through further consolidation. Plastic and paper packaging especially for consumer goods applications has proven to be very innovative and future oriented. Already today 75 percent of our finished goods are high tech products and we will continue this development in order to be competitive against other packaging materials.

The ongoing price pressure after many years of heavy restructuring and continuous process and product improvement is of course a burden for all market players.

While customers are showing ongoing financial ability to constantly redefine their product portfolio and raw material suppliers seem to find their way to improve profitability too, the possibility of packaging suppliers to invest in innovation is limited by unsatisfactory profits.

In our case, an incredible amount of money has been spent over the last few years to close and restructure more than half of the operations and the majority of this investment has arrived at customers in the form of price reductions. The ongoing price war has not allowed the market players to restore their bottom lines and the actual margins are not in balance with desired, future oriented investment strategies. From a long-term perspective, such a price war is not efficient for our industry, our customers or their end users and reduces the ability to address innovation.

One way to react to this is consolidation. We believe competition is absolutely healthy and necessary in order to keep the focus on continuous improvement, but the future competition should be around service quality of existing and innovation of future products.

Actually we are spending about two percent of turnover for R&D, while other industries like automotive or pharmaceutical spend significantly more. This is obviously not enough to answer to all market requirements. We are prepared to follow the trend for more sophisticated packaging and shorter lifecycles with a clear focus on convenience.

Nobody can imagine how packaging will look in the future, but we intend to play an active part in its development. Putting price and innovation into the right balance will immediately lead to increased R&D budgets. 

Obviously there have been questions about the influence of the new investor to the strategy of our business. We are in a stabile financial situation today. One outcome of the divestment process is the insight, that we are well positioned compared to other market players.

Some might think, after such a long carve-out process we are done. In reality we are at the beginning of a long-term company development. We have to change our scope, think long term and start to prepare for the future. The ability to invest in innovation will play a major role.

Biography

Dieter Bergner is currently responsible for the carve-out of Huhtamaki's European Consumer Goods business. He has previously held various European management roles in metal packaging and automotive industry.