Go East - Europe offers huge potential for growth

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Go East - Europe offers huge potential for growth

October 30, 2012 - 05:53
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BRUSSELS, Oct. 30, 2012 (RISI) -Central and Eastern Europe (CEE) is offering packaging companies huge potential for growth and expansion. A change in consumer trends and a boost in consumption have meant packaging demand has increased.

According to Moorgate Capital's Nicholas Mockett, although some CEE countries have experienced a recession or slow down the area remains an attractive market for investment. "Standards of living are still improving and packaging demand will grow, particularly in recent or future accession countries. This could be driven by applicable EU legislation driving packaging and labeling for pharmaceutical and food," explains Mockett.

He also feels that socio economic trends in CEE areas such as more single people households and more working women will help drive packaging demand.

As far as corrugated is concerned, Mockett feels it should benefit from being the tertiary packaging in the FMCG, food, and pharmaceutical packaging markets as well as packaging for white goods, flat pack kitchens and furniture and electronics.

He adds: "The outlook for corrugated could also be helped by the rise of Internet shopping in CEE regions. It is not surprising therefore to see existing CEE corrugated players keen to grown their businesses through mergers and acquisitions or investing in corrugated plants."

Low cost, high growth areas

This strategy echoes Mondi Group's recent activity in this area. Mondi's focus on emerging markets has been part of the group's strategy for some time. The company has further expanded its emerging market focus to include investments in Russia, Poland, Slovakia, Czech Republic and Turkey. The proposed acquisition of Duropack is the most recent example of its investment in its emerging markets portfolio.

Its bias towards emerging markets is in line with its vision on low-cost, high-growth regions and on businesses offering leading market positions and operational synergies with existing businesses. According to the company 71 per cent of the group's net operating assets are based in Eastern Europe, Russia and also South Africa. According to a Mondi spokesperson the primary driver of the company's focus on emerging markets has been the industrial shift from western to Eastern Europe, which has stimulated demand in corrugated packaging.

The company has noticed that over the past number of years, Western Europe has experienced generic growth rates of between one and two per cent compared to around five per cent in Eastern Europe, with Turkey having experienced growth rates in excess of ten per cent. According to the company, it won't just end there with increased consumer spending further strengthening corrugated packaging markets.

Mondi Group's CEO David Hathorn says: "The macroeconomic environment remains a concern, with continued soft demand evident in certain Western European markets.

Encouragingly, demand in a number of the emerging markets to which the group is exposed remains firm and positive supply side fundamental in various of our core grades offer price support."

The Duropack acquisition is in line with Mondi Group's strategy to strengthen its leading market position in corrugated packaging in the CEE area. According to the company, with customers' being a key focus the transaction also offers opportunities for providing a wider product range.

Its proposed acquisition covers one corrugated box plant in Ansbach, Germany as well as one corrugated box plant and one recycled containerboard mill in the Czech Republic.

The two corrugated box plants consume approximately 130 thousand tonnes of containerboard per annum while the recycled containerboard mill is capable of producing 105 thousand tonnes per annum.