Performance and equilibrium
The Canmaker
December 2002
Performance and quality are paramount for canmaker Impress Holdings, both for its products and for its shareholders, reports Mónica Higuera
Few issues animate Dominique Damon, the chief executive of the Impress group, as much as the threat posed to its reputation for innovative metal packaging.
It’s more than five years since the company was formed by a private equity group from the non-beverage canmaking businesses of Pechiney and Schmalbach-Lubeca. Damon has refocused the business towards customer needs with root-andbranch changes in culture and management. She has presided over acquisitions that have expanded the Amsterdam-based group into a global organisation with operations as far spread as the southern Pacific, Europe and the US.
But mention the subject of competitors’ poor-quality easy-open ends degrading the image of Impress’s products and Damon changes up a gear. We met her, along with Impress’s top executives, at the company’s headquarters for a briefing about its financial performance. The mention of poor-performing copy-cat products, however, really gets her going.
“This industry is a bit weak in organising quality competence,” said Damon. “We keep seeing bad copies of our work, of our patented products, in the market. There should be some type of label that recognises quality,” says Damon.
She is also particularly concerned about the image the consumer has of the can. “It is one sickness this industry has,” she says. Damon regrets that the metal packaging industry is not organised, unlike others are, to promote and recognise its quality.
Quality has indeed played a role in the company’s 40 percent sales growth since 1997. Since then, there have been two occasions when the group’s turnover declined: one in 1999, during the food can price war in Europe and this year, when sales dropped slightly.
Chief financial officer John Geake explained the background. Heavy rain in July and August affected the fruit and vegetable pack in most areas, he said. “Last year was poor. This one was worse,” says Geake. “We have pulled out of some less profitable businesses.” Net sales in the third quarter fell seven percent to €353.3 million. “The food division’s lower sales were the main factor behind the seven percent year-on-year reduction in group turnover,” added Damon.
However, earnings before tax and other items (EBITDA) rose by seven percent to around €40.2m, said Damon. “The sustained improvement in EBITDAmargins is mainly due to the successful implementation of Impress’ previously announced rationalisation measures, now essentially complete, and of a wide range of other cost-saving projects, supported by a modest recovery in underlying sales margins,” she says.
Impress is now 89.6 percent-owned by London-based private equity fund Doughty Hanson. At the start its share was 55 percent but the need for additional finance to expand with acquisitions such as the Heinz canmaking operations in the US and Ferembal in France has raised its stake.
Being financed as a leveraged-buy-out (LBO), the original acquisition was accomplished mostly through debt and it is a transitory financial structure. As Damon explains in her recently-published book Performance et l‘Equilibre, “By definition, an LBO must attain ambitious objectives, if only to reimburse its debt in a short time.”
Impress’s debt has been cut from more than €600m in 2000, to an estimated €430m at the end of 2002. “It is quite low for an LBO. We could refinance the debt tomorrow. By now we are quite sound financially—we no longer have our hands tied,” says Geake.
Another key financial criterion that Geake is keen to raise is the ratio between net debt and EBITDA, which at Impress currently stands at 3.3. This ratio is critical since it evaluates the time in years it would take the company to reimburse its debt according to the cash flow it would produce, outside of any new investments, says Damon.
“As a general rule,” adds Geake, “to be under four is okay, five is nasty, and over six is scary.” Acouple of years ago Impress was in the latter category but today it is well out of the danger area and less leveraged than most of its competitors. As a reference Silgan’s ratio is over four, Crown is just under six, while US Can is close to seven.
It is no secret that the company’s strategy is to create value for investors and employees, with the intention of becoming a public company. When the listing will happen, it is a “question of whether the stock market comes back or not. If it’s not the case we want, we will wait and see,” says Damon.
Impress has evolved with a structure divided into five key market segments: food, seafood, decorative and protective finishes (DPF), Impress USA and specialities. “Food is the most difficult segment. It is in total over capacity. There is no doubt about it,” says Damon.
Meanwhile it is in seafood where some of the growing markets are found, such as ready meals and single serves. However, the ‘star division’ is specialities, which includes packaging for powder foods like coffee and milk, aerosols, cigar boxes and battery jackets. “Starting as a poorly equipped and dispersed activity, the division has developed into a market-orientated organisation with restructured manufacturing facilities, updated technologies, highly qualified employees and a high level of quality and service. These achievements have been recognised by our customers and have contributed to the growth of this division,” she says.
Group sales have been steadily rising since the bad year in 1999 with expectations for 2002 in the region of €1.3 billion. But this year, because of the poor harvest and divestitures, there has been a slight fall. Sales in the six months to 30 June were down one percent to €654m.
But the specialities division was up six percent to €104m while food can business rose marginally to €224m. Seafood reported the biggest fall: five percent down to €113m while DPF suffered the same percentage drop to €118m.
This business, particularly in Germany, was very fragmented, says Geake, so initiatives to reduce its complexity and take out excess costs have resulted in the reorganisation of the German operations. Further rationalisation measures include the downsizing of the food canmaking plant in Ludres, France, as well as in Japan and in the Czech Republic. Additionally, the closure of the Rhymney sheet-coating plant and downsizing of the canmaking plant at Grantham, both in the UK, have been completed.
Unlike many in the canmaking business, Impress makes only metal packaging, but some of its products stretch its appearance to the limit as customers look for new ideas. Damon holds up a fish can that could be a plastics cup, but no plastics cup could protect the product like metal.
Partners are the key to product development
One of Impress’s key strategies is to develop new products, says Impress chief executive Dominique Damon. “When looking at products on the shelves, the price gap you see indicates that there is room to develop products. The food market is keen to get more differentiated products.”
Research and development therefore plays a significant role. Some €7.5m is invested in research and development, about 0.6 percent of turnover. Partners, such as Amcor in Australia, contribute to these costs. “These partnerships are service agreements where we fill the R&D gaps of our partners, says Impress’s vice-president of corporate commercial development Richard Moore. Damon adds: “For them it is support in growth. For us it’s support in R&D.”
In September, Impress signed a technical agreement with Portuguese canmaker Colep, while next year the company will reveal two more new partners. “They are not direct competitors. One of them is a US group whose core business is not in cans,” she says.
Damon’s rationalisation also reached the R&D department, where there is one executive who is dedicated solely to rationalisation of steel specifications and finished goods.
“For example, easy-open ends are now the focus of three plants, and not ten as in the past,” says the R&D director Philippe Gimenez.
Printing activities have also been rationalised. Initially these were spread across Europe in almost every factory with a total of 17 printing lines. They have now been reduced to six printing centres with six-colour decorating lines: two plants specialise in aluminium and four in tinplate products. Meanwhile, a project in development in this area is digital printing: “We are following it very carefully,” says Gimenez.
Key behind the company’s R&D is the creation of packaging solutions that provide a common identity and enable immediate brand recognition. Its bowl-shaped cans with Easy Peel aluminium foil membrane ends have until now been introduced in France, Spain, Italy and Poland, while the Asian market is expected to follow shortly.
Other areas where the company is planning to increase production are the conical aluminium cans of which it currently makes some 20 to 25m each year. And in the paint cans sector, it has developed a more user-friendly closing system, and an end with a rectangular aperture to accommodate a paint roller.
Also in the paint can sector, Impress has developed cans that feature graphics to replicate the finish of the paint they contain. This avoids glossy cans containing matte-finish products. “It’s fun,” says Damon. The lock-seamed cans will be launched in the French market in January.
Impress is also working on rectangular food cans with peelable ends similar to the Le Carré. “Le Carré is an interesting product that we are ready to get into. We also have many, many alternatives to it.” Moore holds up an example of the cans used by Sainsbury’s, adding: “But there must be a perfect fit between the packaging and the product. Unfortunately, here it’s the standard product, sold at the standard price.”
Regarding polymer-coated steels, Gimenez says: “If there is a breakthrough in the cost of the material, we’ll certainly be interested. It needs to come to an acceptable level of price. It is a supply question.” Impress currently uses polymer-coated steels only for aerosol components.
Almost five years after its configuration, the company has also changed its name. ‘Metal Packaging’was added to the Impress name to facilitate comprehension of its activity amongst customers and industry, explains Damon. “As Impress Group BV became well known this paraphrase became superfluous. It was therefore time to simplify our identity and re-identify ourselves by our well known market name.”
Performance and equilibrium
“Often, when I have been recruited or promoted it has been in response to a need for profound change,” says Dominique Damon in her book ‘Performance et l‘Equilibre’. Following a career that has included key management roles at Danone and Alusuisse Lonza, change is indeed what she has brought to design the Impress Group. “We’ve been lucky to start from zero. You can then apply a model from the beginning,” she says.
Damon explains what is entailed in this new industrial model: a lean organisation specialised by client and organised by markets; a focus switch from finished product to customer service; from commercial relationships based in annual transactions to daily operational alliances; from stocks’ management to management of information systems; from the notion of profit to that of return on funds.
There are also vivid accounts on her visits to factories, and of fiery meetings between parties with ancient antagonisms. Her strategy is to listen and allow for dialogue: “The simple fact of listening to your interlocutor is enough to disarm the aggressive emotional charge that sometimes goes with demands.”
Performance et L’Equilibre is published in French by Editions Village Mondial / Pearson Education (ISBN 2-84211-192-3).
For further Information, please contact:
Impress:
T: +33 (0)243 485 100
Discover Impress on: www.impressgroup.com
