Picking up: machinery turns a corner in 2018

What did the polyurethane machinery makers think of business in 2018, and what do they hope to achieve in 2019? Simon Robinson crunches the numbers

Something unusual happened in the polyurethane machinery sector in 2018: a successful going concern was bought by another company. Hennecke bought OMS.

Is this the first stage of consolidation in the sector? If it is, it will be a slow process. Many machinery companies are family owned, or privately held by a few individuals. This gives them a number of unique characteristics in the polyurethane sector.

First, they don’t have public shareholders demanding regular streams of dividends.  And second, the owners often also run the companies, and have a personal stake in their success. This tends to make them very passionate about the business. Many companies are family owned, with a strong incentive to try and pass them on to the next generation of the family.

These factors work against the takeover mania which can sweep sectors of industry. The only real windows of takeover opportunity for companies wanting to move into new geographical or technological areas are when the generations change, or when the existing owners can be persuaded that an offer that is too good to refuse.

It is certain that both the buyer and the sellers of OMS Impianti felt they got a good deal. The transaction is bound to provide a significant improvement the German company’s penetration into the rigid board and insulation markets.

Perhaps more intriguing were comments made by Hennecke’s managing director, Rolf Trippler, (p 39 Urethanes Technology Oct/Nov 2018). He said the acquisition would give his company access to polyurethane machinery expertise located around Milan, Italy.

Discussing the deal, one machinery maker told Urethanes Technology International: ‘If you had asked me two years ago, I’d never have guessed about Hennecke and OMS.’

There is good reason for this. Unless there is a clear desire to sell for some reason, the private ownership of machinery companies gives them great resilience, and therefore little need for this sort of consolidation. He explained: ‘I see that some of the smaller companies are suffering a little bit, but I don’t think that it will affect the market at all.’

The other time when it’s common for ownership to change is when the handover to a new generation is complete. A good example of generational change is under way in the UK, although in this instance there is no suggestion that there will be a change of ownership. AutoRIM has installed two new, younger, directors in preparation for the eventual retirement of the existing owners.

Although 2018 was a year for optimism, people are not as optimistic about their plans for 2019 as they were for 2018. The industry may have reached an inflection point in 2018, according to the UTMcIndex. This is generated as a part of our annual machinery survey.

Companies were asked if they are looking to expand their business, upgrade facilities, consolidate, build new plants, buy competitors, or sell part – or all – of the company. We then normalise the results in each category by the number of respondents, and an index is calculated. This accounts for how positive the actions are.

This year’s index shows that the level of optimism was flat between 2017 and 2018, but higher than the five-year average. There was a general rise in the index between 2015 from 3.7 to 4.5 in 2017.

Singapore’s RIM Polymers, for example, is actively looking for acquisitions, and would also like to find a partner, or partners, to help it to expand into the Middle East, North America and Europe. Germany’s Polytec EMC is also looking to build more capacity.

Meanwhile, OSV’s marketing manager, Yuri Shafran, said: ‘We are going to enter Asian markets such as Malaysia, Thailand, Vietnam, Indonesia, India in 2019.’ And OSV’s plans to expand into south and southeast Asia chimes with other responses in the survey.

This was the standout growth area of 2018, according to the survey. Significantly more of the respondents said that they believed sales were growing faster there than in 2017, and also faster than the rolling 2013-17 average of responses.

Growth in the western European market for polyurethane machinery was also higher in 2018 than in 2017. However, unlike southeast Asia, which comfortably beat 23017 and the 2013-17 average, western Europe did not beat the average.

About the same proportion of respondents in 2017 and 2018 believed that North America was the fastest growing region. South America and Middle East/Africa were both regions where the perceptions of sales growth shrank slightly between 2017 and 2018.

There was a significant drop in the proportion of companies that thought sales in central and eastern Europe were growing fastest. There was also a small decline in companies who thought the same about China. But as there is a very dominant domestic machinery-making industry in China, western equipment is sold only to the top-end foam makers. That represents a small base of companies in a very large market.

Looking at actual sales in 2018, China was the stand-out region, with about 2.7 times more respondents than the 2013–17 average saying that sales there were high in the survey year. Southeast Asia came next, with 1.7 times more surveyed companies claiming sales were high in the region. In central/eastern Europe, the US and Japan, there was an increase in the number of companies who suggested that sales were high there in 2018.

Performance in both Europe and South America consolidated close to the five-year 2013–17 average in 2018. However, in the Middle East/Africa region, it dropped.

On the whole, the there was a belief across the machinery industry in 2018 that only the general industry and furniture & bedding sectors had higher sales in 2018 than in 2017, or than the 2013–17 average.

The largest proportional fall was in suppliers to the automotive parts sector. There was a marked decline in sales into that business between 2017 and 2018, according to the survey. This represents another year of decline from the 2013 peak, and it was lower than the level of sentiment in 2016, the next most recent low.

There is also a less optimism among companies supplying the building & construction sector. This was lower than the average in 2017, and dropped again in 2018, the survey said. It is possible that the construction industry is waiting for a clear lead from regulators about using PIR and PU boards to insulate high rise buildings in the wake of a number of high-profile fires. In addition, 2018 was one of several years where MDI prices were high, and several respondents, as we shall see later, blamed that for a switch to other less-well insulating, but cheaper, materials such as glass and mineral wool in some applications.

Refrigerated appliances was also lower in 2018 than it was in 2017. This, in turn, was also lower than the average.

It was the second year of modest growth in the furniture & bedding sector, which over the past two years has been slowly dragging the long-term average number upwards. Different companies have different takes on the way 2018 played out for them.

Hennecke’s Rolf Trippler, for example, said that 2018 started well, with a lot of the sales momentum of 2017 carrying over into the start of the year. ‘If you look at the growth in raw material consumption in North America and compare it to the growth in machinery sales, Hennecke was really over-performing there,’ he said.

The stand-out sector for Hennecke’s machinery sales was polyurethane lamination. ‘Volumes were quite strong and we see this continuing into 2019,’ he said. The main market for these machines, he said, is in the manufacture of flexible-faced and steel sandwich panels for construction applications.

Europe was also good for the German company in 2018. Once again, Trippler compared his firm’s sales with the growth in material consumption in the region. ‘The amount we sold into western Europe and central Europe, we were performing better than the materials market percentage-wise,’ he said. There were no stand-out areas here. ‘Growth was broad-based; it was a solid market.’

Slabstock machinery demand was good around the world, except North America which is saturated,  Trippler said. But there was growth in South America, and as well as south Asia – India – and southeast Asia. ‘We see Vietnam as an upcoming market for a number of products,’ he added. ‘This is especially true for the slabstock business.’

Rick Hungerford, president of Edge-Sweets (ESCO), said 2018 was a strong year for its saw and fabrication machinery. The company’s PVX vertical contour cutting machinery was ‘selling very well and pulling through other machinery sales’. This is because it is often integrated into cutting lines.

He added that his company was enhancing and redesigning existing machines to leverage advanced manufacturing techniques to reduce costs and build times.

Hungerford became a great fan of YouTube as a B2B marketing channel in 2018. ‘New customers continued to find us via our YouTube feed, which shows our machines in action,’ he said. It has led directly to sales, he added.

A customer making aircraft cushions approached the company. In the old process, layers of speciality fire-retardant foam were laminated together, and then shaped using a CNC router. The new process inserts a pre-shaping phase, using a wire contour machine, before the router. This additional step significantly increases process throughput, Hungerford said.

On the dispensing side of the business, almost 100% of sales were for low pressure machines in 2018. These are increasingly being specified for high output, high viscosity filled systems, he said.

Francis Pinckers, director of cutting machinery company Fecken-Kirfel, agreed with the survey. ‘Last year, the US and west of Europe were stable, but every year there is good business in Western Europe,’ he claimed.

This may seem strange for what might be perceived as a mature, stable market. But he considers that maturity an opportunity. ‘People are looking to automate and to have more efficient machines,’ he explained. ‘They have to invest in technology and the newest innovation. We see good growth.’

There is similar growth in North America, Pinckers added. ‘2017 was a very good year for us. At the end of 2017, we communicated that 2018 would be a consolidation year. We did not expect to increase our business. But we nearly had the same sales in 2017 and 2018.’

Philip Hindson is managing director of the UK’s AutoRIM. He said: ‘In general, 2018 was a pretty good year for machinery manufacturers in the UK and Ireland.’ He believes business was driven clients bringing component manufacture from mainland Europe back to the UK.

What does the rest of 2019 hold for the machinery sector? Pinckers said Fecken-Kirfel, expects a small downturn. ‘We feel the market has been a little quiet since the middle of last year, [and will be for] at least for the next couple of months,’ he said. ‘I don’t want to talk about recession or crisis; we are a long way from that.’

He added that the global economy is due for a little cooling in comparison with the past five or six years. ‘We had increases of between 10-15%; 2019 will be a little bit down from that,’ he said. He anticipates a slight improvement in 2020.

‘Who knows what will happen in 2019?’ AutoRIM’s Hindson said. ‘I believe the automotive industry will have a short-term slow-down, but the trend in manufacturing insulation products will continue to grow. The demand for SIPs and late-format building panels seems to be gathering pace, and it’s going to be an exciting time.’

Hennecke’s Trippler is, perhaps, a little more pessimistic. ‘I think 2019 will slow down,’ he said. ‘There is good first quarter, but generally we expect it will slow down. The investors are not there and, especially in the automotive sector, it is becoming quite weak.’ He added that some companies are holding on to their cash. ‘They’re more careful and they are really thinking two or three times if they want to make the investment.’

As they are waiting to see what their competitors are going to do, the other companies wait as well. This could be leading to a vicious circle in the automotive supply sector, he suggested. ‘They’re waiting, and that is leading to a spiral,’ he said. ‘It means that in 2019, it will be harder to meet all the goals than 2018.’

However, not all the respondents shared Trippler’s point of view. OMV’s Shafran said: ‘We expect significant sales growth for 2019. We have already got about 25% of the total 2018 sales volume during first two months of 2019.’

ESCO’s Hungerford added  that the year had got off to a strong start. ‘We have nearly sold or booked 80% of our 2019 budgeted sales in the first quarter of the year. We are seeing good tempo in sales for dispensing machinery in 2019.’