The Pulse Legacy And Film Prices

Posted on 28 Jun 2017

The Pulse Legacy

It was sad to return from my Spring break to hear that KPMG had finally given up the ghost and closed the Pulse Business.  This was once a great company and a UK Packaging convertor market leader.  Now both factories are closed and some 350 people have lost their jobs, very sad.

What went wrong?  As always in these circumstances an accumulation of things.  But it seemed obvious that when the previous American owners, Printpack, sold the business to the Management Team and The Pension Fund for £1, that the company had its problems.  We believe these included a pension deficit rumoured at £131 Million, plus there was subsequently some major capital investment.  According to the assets for auction these included:-

• 1 x 10 colour flexographic printing press
• 1 x 8 colour flexographic printing press with in line gravure facility
• 1 x extrusion coating and laminating line
• 3 x 9 head slitter/rewinders.
• 1 x Pouch making machine.

These large investments along with various ancillary plant were all purchased in the last 2/3 years.  Apart from the millions of pounds committed to leasing or buying all this new equipment, the constant disruption of all this plant installation must have been a management nightmare, probably giving constant organisational problems.  This investment also suggests a policy of growing sales quickly, never an easy thing to do profitably.

However, we are where we are.  The consequences of the closure are already being felt across the market.  Some £60 Million of film sales have been re-allocated elsewhere and good luck to those competitors who have taken on much of this work.  Whilst some has gone overseas, much has stayed in the UK, thus we hear of lead times for supply of printed film from some companies, stretching to 6-8 and even 10 weeks.  My recommendation to those larger companies and Brand Owners who are having to contend with these delivery dates is, give us a call at National Flexible.  We have the expertise and capacity to at the very least halve the lead times being quoted by others, and our quality is excellent (sorry for the promo!).

A further consequence of the closure is that there will be more credit tightening by film suppliers.  Some lost millions, some were insured, some were not.  Even those companies who were not supplying film have realised how fraught the current financial situation is for some packaging film convertors.  As I have noted previously, with virtually 100% of raw material imported into the UK, then the added costs of the decline in sterling, and many customers (supermarkets) fighting against any increase in film prices, margins are being seriously squeezed. This scenario suggests that there are other packaging convertors out there with financial problems which certainly won’t be helped by tightening credit from film suppliers.

Finally, there are three other factors arising from the demise of Pulse;

• Printed film prices should strengthen in the second ½ of 2017, as some of those printers who have taken on the Pulse work are no longer desperate to fill capacity.
• There are some very experienced commercial people now in the market looking for jobs.
• There is an unprecedented volume of printing converting plant waiting to be sold.

I suggested that the demise of Pulse was an “8” if the print and converting industry had a “Richter Scale” for shocks.  It is likely we will feel the after shocks of this closure for some time to come.

Film Prices

Having noted a fall of some 15% in the price of oil whilst I was away, I was looking forward to seeing a softening of film prices on my return, particularly from the Middle East suppliers, who are producing polymer virtually “at source”.

In the event it seems, whilst a small price reduction was made for June supplies, this has barely fed through to the UK due (we are told) to a softening of sterling over a similar period.

If we are to believe all we read, the world is awash with oil and with the current Brent Price heading towards $40 per barrel, then we can anticipate falling film prices any time soon!  But my thoughts are “don’t hold your breath”.  Whilst it is possible we could get lower film prices feeding through in the summer months, I doubt if these will be at a level which makes a serious impact on current prices.  I take this view based on the actions of the polymer producers when similar situations have occurred in the past i.e. they have simply closed capacity to balance availability and thus maintain margins.

Admittedly polyolefins are not the major profit producer for some of the giant petrochemical companies, but as ever they seem to be a “protected market”.  Both Borealis and B.A.S.F. have reported record profits for 2016 and declared optimism for their 2017 prospects.  These are hardly comments which suggest they will be reducing prices any time soon.

That said, now is not the time to be buying film for stock, better to wait and see.  Unfortunately (with hindsight) here at National Flexible we are overstocked due to some panic buying when film shortages were forecast in the first ¼.  This situation will not unwind until well into the 3^rd ¼, therefore I reiterate my offer to any ex Pulse customers reading these notes.  We have the film, technical skills and capacity to arrange for print delivery, well before our competition.

Any thoughts you may have on any of these items raised would be welcome and why not join me on LinkedIn for regular updates.

Barry Twigg