European BOPP market leader and CPP film manufacturer Treofan (Raunheim / Germany; www.treofan.com) lifted its sales by 5.3% in 2007 against 2006 to EUR 483m, as volumes rose nearly 12,000 t to 217,000 t. Some 3,800 t of the total came from the new Mexican line that went on stream in October 2007. Despite the sales progress, the company’s operating loss widened to EUR 5.2m from EUR 1.7m. Including finance costs of EUR 26.6m and taxes of EUR 7m, the net loss climbed to EUR 38.5m from 24.8m.

The European market accounted for the largest share of Treofan’s sales. The year-on-year increase to EUR 369m from EUR 347.5m was due almost exclusively to the speciality products business, which added EUR 20m in sales. North American turnover denominated in euros was virtually flat at EUR 88.6m (EUR 88.5m). Sales in South Africa rose to EUR 25.5m from EUR 22.4m.

Some 43% of the 85,000 t of film products in 2007 sold were standard grades, while the remaining 57% (114,600 t) were specialities (the figure for Europe was 61%). As specialities sell at a 62% premium on average, compared with standard grades, and also because they yield higher margins and are more competitive, one of the company‘s strategic goals since 2004 has been to consistently expand this segment.

After completing a wide-ranging restructuring scheme initiated in 2005, Treofan now operates 24 production lines employing 1,700 people at seven worldwide sites, including three in Italy and one each in Belgium, Mexico and South Africa. The company claims to be the largest BOPP films manufacturer in western Europe. With a market share of 3.3%, it is third globally, behind ExxonMobil Chemical Films (4%) and NanYa Plastics (3.7%). This sequence will probably change soon, however, as Middle East company Taghleef (Dubai) takes over Italian producer Radici Film – see Plasteurope.com of 05.05.2008.

Commenting on the widening losses, management of the crisis-ridden company said its problems had been mounting since the beginning of 2007, due to market oversupply in Europe and rising high raw material and operating costs. Its location in the expensive euro zone has contributed to the worries. Last year, raw materials alone accounted for 58% of costs – EUR 258m in absolute terms – and utility expenses for around 8%. Treofan said the strategy of concentrating on specialties is actually a double-edged sword, as passing on raw material costs is easier in the standard segment, which is characterised by spot transactions, compared with the specialties segment in which long-term contracts predominate.

To help counteract this effect, a productivity enhancement scheme was introduced late last year. This is aimed also at paring down working capital, presumably a prerequisite for the banks’ extending the company’s credit lines in autumn 2007. A core part of the new restructuring programme is a 20% cut in the European workforce, across all its sites and hierarchies. The workforce was informed in November 2007, and negotiations with works councils and trade unions on the procedure and scope of the reductions have been under way since January 2008.

Treofan has withdrawn completely from “Biophan” biaxially oriented films based on polylactic acid (PLA). After it was unable to call off all the contractually agreed volumes from the toll manufacturing facility at its former French site, the line was taken over by Polyfilms on 1 January 2008.

While Treofan appears to have tackled some of its largest problems, it still faces the difficulty of passing raw materials price increases to customers. In view of the present market oversupply, which is unlikely to change in the medium term, it is somewhat of a bind, especially as competitors are concentrating on the mass production of standard products at low fixed costs. The situation is further exacerbated by the unfavourable exchange rates of the euro against the US and British currencies, exploding oil prices and continuously mounting operating costs.

Treofan will continue to focus on innovation to secure its technological lead while looking for business in emerging geographical markets. The company is in preliminary negotiations about setting up joint ventures in Russia, India and China. A joint approach with other companies would serve to limit the individual financial risk.

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Treofan presentation on its financial situation as a PDF document (192 KB)