Within only a few years, the UAE-based group Taghleef Industries (Ti) has became a serious player in the film extrusion industry. In this interview CEO Europe Valerio Garzitto explain’s Ti’s strategy, the significance of having a local presence, and the role that competition from emerging markets plays in their planning.
Sebastian Reisig: Could you please give me a brief overview?
Valerio Garzitto: We are one of the few global groups producing films for packaging. It all started with a presence in the United Arab Emirates. In the last ten years or so we have been growing through mergers and acquisition. The first acquisition was in Egypt with Technopack in 1989, then AKPP from Oman in 1996, then Dubai Poly Film in 1998. In 2006 these three companies were merged to form Taghleef Industries (Ti). In the course of time Ti further invested in 50% of Shorko from Australia (2007), in 2008 we acquired Radici Film which had plants in Italy. Sebastian, by the way, the former Radici plant is the place where we are right now. Radici had a plant in Hungary, which is also part of Ti. A year later we fully acquired all the shares of Shorko. In 2012 Ti invested in AET Films in the USA and Canada, and this year Derprosa Film of Spain has been acquired.
You understand that we only invest in companies that provide us with significant benefits in terms of production and/or location. The acquisitions of Radici Films and AET Films increased Ti’s production by 100,000+ metric tpa each. Currently we are one of the largest producers of BOPP, CPP, and BOPLA. For instance we produce more than 410,000 metric tpa!
In total we have 23 BOPP lines in operation, one BOPLA line, and 2 cast film lines. Our metallising capacity is approximately 60,000 metric tpa which come from 13 machines.
Nowadays Ti is present in 5 continents with 3 manufacturing units in the Middle-East, 3 in Europe, 1 in Australia, 1 in the USA and 1 in Canada, plus two distribution centres and sales offices in Germany and China and one distribution centre in El Salvador.
Sebastian Reisig: You mentioned the significance of location. Can you please specify what that means for a group basically serving the whole planet?
Valerio Garzitto: Our plant in the USA is very well located in the Mid West. This is an area where a lot of packaging printers and converters are located, for example Bemis. Logistics is a very important topic, therefore production plants have to be in strategically positions in order to reach the customers in a reasonable time.
In Italy we are located in the North East of the country, so that we can also serve the Central and Northern European customers. The Hungarian plant is focussing on the Eastern European Market and the Balkans.
Our plants in the Middle East produce a little for the local market, but mostly its dedicated for exports. When you take a look at the map you will notice that the Arabian Peninsula has connection to many important ship routes to Australia, South America, and also to Europe. From our Egyptian plant we can serve the whole Mediterranean with standard BOPP film within a few days!
Being a truly global company means that you can serve all the important producers. Pepsico, Coca-Cola, Nestle, Mars, Mondelez etc are among our customers. They have global production locations, so they need a company that can supply the same high quality in every continent.
Sebastian Reisig: Your global presence is missing South America. Isn’t this a growing and therefore interesting market?
Valerio Garzitto: South America is definitely an interesting, important and promising market. Currently it is served by our presence in the USA, but speaking frankly we are looking for possibilities to grow in this market. One of the reasons is that this continent protects its producers with high duties, so having a local presence would make sense. I can tell you that we have already made an attempt, but weren’t successful. Be assured that in the future you will see Ti in South America. Another important market is China. We currently have a distribution centre there, but have to make up our mind about what to do on this market. This is a very competitive market with high capacity.
Sebastian Reisig: Do you get your raw material from the resource-rich Middle East?
Valerio Garzitto: We mainly purchase our raw material from local suppliers. The reason is that we require fast service and delivery. We do not have large storage capacities, so it’s important for us to receive our deliveries within a reasonable time. Therefore we opt for the local choice.
But you are right, in general there would be a cost advantage in purchasing material from the Middle East, unfortunately this advantage is offset by some duties. The European Union tries to protect and support their local manufacturers by imposing such prohibitive tariffs. On the other hand film producers from China and India enjoy nearly duty-free exports to Europe! As the labour costs are much lower in these countries, this gives them the edge in terms of cost per kilo.
Sebastian Reisig: Being able to offer a good price is one thing, offering good quality another…
Valerio Garzitto:… You are right, that’s the only point where they are competitive. They do not supply specialty films, only commodity. Producers from China and India only look for bulk orders. One of our advantages is that we can supply small lots. You can imagine that customers working with specialty films do not need 20 tonnes in one shot. On top of that we can offer faster service due to proximity.
Sebastian Reisig: You were with Radici some time before Ti acquired them. Can you please describe what the company looked like back then, and what changed after the acquisition?
Valerio Garzitto: Radici’s was a family owned company that dates back to the late 80s. The Radici family originally comes from the city of Bergamo, which is north of Milan. They decided to set up a plastics facility in order to diversify their business. Their main business was fabrics, chemicals, and filaments. After the start up the business grew at a high pace, in the first ten years Radici managed to reach a capacity of 70,000 tpa of BOPP. In 2001 they acquired a competitor in Hungary to reach a capacity of 110,00 tpa in total.
In early 2000 the whole packaging business was growing very fast. So the industry was subject to the scrutiny of private equity and financial investors. Between 2000 and 2004 many European companies were taken over by investors including Derprosa, Trespaphan, Manuli films, Innovia, and last but not least ourselves. After these four years, more than 50% of the BOPP capacity in Europe was in the hands of financial investors. In 2003 the market was overheated, there was lots of new capacity coming into it, especially from China. Many companies were struggling because the demand wasn’t large enough to meet the overcapacity.
Of all the companies I mentioned, only Radici and Innovia were able to “exit”. All the other companies went through really tough times and are still in the hands of financial investors. Except for Derprosa, which is now part of Ti.
Sebastian Reisig: What role does the former Radici plant play within the Ti group?
Valerio Garzitto: We are the headquarters of Ti Europe and serve as a centre of innovation within the group. Here we produce Extendo, which is a high barrier film. Furthermore we are the only Ti plant working with biodegradable plastics. Another change is that we are part of a global group, and not a local producer anymore. This gives us a better position when negotiating with end-users. The Ebitda of the European business is about 12% of the turnover. All in all a good and satisfying value.
You have to understand that our industry is cyclical. This year a couple of the old lines have been decommissioned. If you look back at the middle of the 2000s machinery suppliers were installing 30 BOPP lines on average per year. In 2003 or 2004 this peaked at about 50 lines! Sometimes it goes up, sometimes it goes down. Right now there is a lot of capacity, especially as the Chinese have invested a lot. But it looks like that there will soon be more demand than now. Also few new lines have been installed here in Europe. This in very few years’ time will result in a more balanced situation.
In Europe we are at about 92% of utilisation of the capacity, which is basically the limit as there are mechanical limitations.
Sebastian Reisig: It appears that Ti is mainly focussing on BOPP. Why is that and wouldn’t it make sense to diversify?
Valerio Garzitto: It is very important for us to look for new strategies in order to compete. BOPP is our main product with 400,000+ tpa, but we are thinking about new materials. Sustainability is one big topic, not only for the market but also for us. In Italy we already have one BOPLA line installed, but we are also looking into other kinds of substrates. There are many opportunities in BoPET, BOPA, PVC, etc.
We are also trying to serve more markets. Tobacco is a market that we already serve, there are also some industrial applications.
Our main focus is on food packaging which takes about 75% of our production, but wrap around, pressure sensitive, and in-mould labels are also an interesting and growing market for us. The label business currently makes about 20% and is growing at a higher pace than packaging.
In Europe we have modified our lines in order to produce 5-layer films which are mainly used for special applications. We can also offer 7-layer film for ultra high barrier packaging applications. As these films work with an internal barrier, they are completely different from what you would achieve with a coated barrier. During conversion, a coated barrier can be spoiled (i.e. scratches, brittles, etc). This cannot happen with coextruded barriers.
Sebastian Reisig: There are also 9 or 11 layer lines on the market. What do you think about the possibilities they offer?
Valerio Garzitto: I remember 6-7 years ago the manufacturers claimed that you can produce everything you desire on such lines. I think that you can specialise the lines to a certain extent with add-ons, but when you prepare to do everything with one line then you fail. There is a certain limit that you can reach by adding equipment, but there is definitely no such thing as a jack of all trades device. But even if there were, you would also get into a sort of competition with your customers! Furthermore the market you can serve with those types of lines is very limited. What you would gain in variability you would lose in terms of economy.
With the 7 layer we can create a superb barrier. We see this as a good and reasonable compromise.
Sebastian Reisig: So far, you have only one line for biodegradable PLA. Does this mean that the material is still waiting for its commercial breakthrough?
Valerio Garzitto: Ti supplies a range of bio-based, compostable and biodegradable BOPLA packaging films branded Nativia. This product provides what the market is currently looking for: biodegradability and sustainability. But there are still some hurdles to overcome. The first is the price, which is between 2-3 times higher than standard material. The second point is that there is a concern from end-users about using food based materials. There are more than one billion starving people on this planet, so producing plastic from food raises an ethical issue. We avoid this by using food waste or other materials which are not part of the food chain for raw material instead of food. The third point is of technical nature as BOPLA is a noisy material. Everybody has heard of the famous and loud SunChips. Thanks to lots of research and development, we are beyond that. But BOPLA is still more noisy than non-biodegradable substrates – more work on the formulation is required.
Sebastian Reisig: Is the printability and the runability on the same level as regular material?
Valerio Garzitto: As with everything there are pro’s and con’s. The material for instance has very high mechanical strength, and excellent transparency, and gloss. Furthermore the sealing behaviour of the film is very goob. Regarding printability, it is true that you cannot use some of the common solvents. But as the surface tension of the film is high you can use other types of inks.
The moisture transmission rate is higher than that of BOPP. This natural breathability makes it a good material for packing salads for instance. Furthermore the material shows good deadfold and twist behaviour. It is also fat and oil resistant, which makes it an interesting solution for preventing migration.
Currently we are working on a material that can be laminated to paper or board to prevent ink migration.