Branded Products Division

Increased capabilities for Branded Products

The Branded Product division serves mainly two business segments: Tobacco and Confectionery. The division was positively affected by the acquisition of the European operations of MWV – MeadWestvaco Corporation, especially Tobacco. In 2015, Branded Products’ sales amounted to 268 MEUR, an increase of 63%. This increase is mainly attributable to the acquisition from MWV, which has been included since 1 May, 2015.

Product offerings

Tobacco offers packaging solutions, including hinge lid and display cartons, inserts, cut labels and various opening mechanisms.

Confectionery provides a unique, wide product range covering both standard and premium carton-based solutions.

Highlights 2015

Despite a declining tobacco market in Europe, AR Packaging grew its sales of tobacco packaging to its major customers. During the year, Tobacco extended a multi-year contract with one of its key customers. Sales of Confectionery were challenged by the economic situation in Russia during the first part of the year, but this was partly offset by the efforts in the premium product segment of the market.

Following the successful acquisition of the European operations of MWV (MeadWestvaco Corporation), AR Packaging has become the third biggest supplier of packaging in the world to the tobacco industry. For more information, see separate update on the acquisition in this report.

During 2015, Tobacco has successfully delivered key customer products with highly complex designs using a variety of materials and print technologies. In 2015 A&R Carton Graz won a Pro Carton ECMA award in the Nonfood category for the launch of Davidoff Black Glidetec.

Tobacco continued to work with its major customers and supported the introduction of more than 1.500 new product implementations ensuring customers achieve their market launch objectives.

The acquisition from MWV has provided Confectionery with more packaging capabilities, particularly in the printing and finishing of packaging, through the ten-colour printing line at the Graz factory.

Confectionery introduced a new product to the market with printing on hot foil, which can replace cold foil packaging solutions. Through the new printing technique, food safety colours are used. The reaction of the customers was very positive, both from a food safety and marketing point of view.

Confectionery also won a Pro Carton ECMA award for its innovative packaging for the Swiss chocolate maker Kägi Söhne with distinctive and eye-catching appearance.

During the year, significant investments were made in the production sites at Krakow, Poland, Graz, Austria and Augsburg, Germany. These investments include the transfer of a printing press from the MWV production facility in Svitavy, Czech Republic, planned for the beginning of 2016, and the upgrade of an off-set printing press in Graz for more short-run production. In Augsburg the equipment was also upgraded for more specialized printing. The Branded Products division is thus well-equipped to meet the demands of its present and future customers.

Market and customers

The European market for tobacco packages continued to decline in 2015, and the market value was estimated at 0,9 billion EUR. The demand for tobacco products was impacted by legislation and taxation in both Western and Eastern Europe. Health issues, bans on advertising and anti-smoking legislation are having an impact on consumer habits. AR Packaging has strong relations with the major tobacco manufacturers in Europe who account for the majority of the European production.

The addressable market for Confectionery packaging is estimated to grow at approximately 2% annually, with a market value of 0,6 MEUR. One main driver for market growth is innovation – through innovative packaging with distinct visibility to help customers reach consumers in the store faster. Other drivers are the increasing consumption of chocolate and the focus on sustainable packaging and reducing the carbon footprint. The main customers are Ferrero, Mars and Nestlé. Confectionery’s most important marketing activity in 2015 was the participation in the Congress for the Confectionery Industry in Berlin. Most brand owners were present at this high-level event and Confectionery had the opportunity to present its packaging capabilities.

Strong efforts in innovation

The Futeco technology (Future Technology Converting) can be applied to advanced high value-added solutions, offering our customers unique opportunities for strong, positive differentiation versus competition. The Futeco advantages include possibilities for shelf-differentiation, better packaging finish and modularity for future technologies, such as digital printing or ink-jet technology. The concept is particularly adapted to provide high-value-added finishing for tobacco, confectionery and cosmetic products.

Focus for 2016

The Tobacco EU Directive will become effective as of May 2016, impacting how tobacco products are produced, packed, displayed and marketed in Europe. This is a process that has already started, with local markets incorporating this directive into local legislation. The implementation of the directive is expected to further suppress the demand for cigarettes and other tobacco products.

AR Packaging’s long-term goal is to become the strategic partner to its tobacco customers. In 2016, AR Packaging will continue to take additional steps to work in close collaboration with its customers in such areas as production, logistics, product development and sales. Tobacco will also investigate opportunities for expansion with its customers, both in Europe and in other markets, such as Asia and Africa.

Confectionery will focus on increased market share through strong geographical coverage, innovation and strong competence. Among others, Confectionery will make strong efforts to develop and market premium products and, in particular, seasonal products for such occasions as Christmas, Easter and Mother’s Day. New shapes and finishing will be decisive factors for success in the market.

Finally, production efficiency will be key, both for customers and the Confectionery segment. To optimize the customers’ processes through product development, change of board material and other aspects will be part of these efforts.