The cigarette processing equipment sector has felt the effects of innovation, and the pessimism of tobacco machinery manufacturers has vanished. Previously, news from this sector consisted of bad news such as departmental closures, job cuts, or profit reductions. At least for now, the market environment for cigarette processing machinery is very optimistic for equipment manufacturers.
“We are very optimistic about the future,” said Michiel van der Sluis, head of ITM, a company headquartered in the Netherlands. “Sales of most of our products are very stable, and sales of our new products have increased significantly. Sales of our new ITM machines have increased compared to sales of retrofitted equipment.”
Machinery manufacturers believe there are various reasons behind this positive trend. “The cigarette machinery market currently has great potential,” said Stefano Chini, product manager at GD. “The growing interest in new packaging, enabling cigarette manufacturers to differentiate and promote their products simultaneously, along with the ongoing need for product flexibility, increases opportunities in the cigarette machinery market.”
Christopher Somm, a member of the executive board of Rainbow, offered a different explanation for the market's growth trend: "Cigarette manufacturers are very focused on restructuring, and we have noticed a recent trend of increasing demand for new cigarette processing machinery. As a result, the overall cigarette processing machinery market has seen growth."
While describing external market influences, restructuring is a key internal factor in response to recent proactive moves in cigarette processing machinery. Many companies have undertaken major restructuring activities over the past two years and are now benefiting from them.
For example, ITM shifted its strategy from diversification to focusing on its tobacco business, closing its software development and water filtration subsidiaries. Along with this shift, the company also strengthened its parts division—the precision machinery division—by investing heavily in this area.
In 2003, INH discontinued its packaging business to focus on its core competencies, closing its subsidiaries Topak Verpackungstechnik and Schmermund Verpackungstechnik. In short, INH's tobacco division became the mainstay business, now employing a total of 3,500 people, compared to 4,100 in 2002.
Rainbow's sales figures and profits both increased. "In a growing market, we were able to increase our market share in cigarette processing machinery. In 2004, total sales revenue for the tobacco division exceeded €600 million, actually surpassing our initial expectations," said Sam. "2004 was a successful year for the tobacco division, with profits returning to previous levels. The measures taken to ensure long-term prosperity have yielded the results we anticipated. This year's performance has been positive. Rainbow continues to track its projects to ensure future success, optimizing costs across the entire processing process by implementing long-term process improvements throughout the tobacco division. We also focus on the satisfaction of all our customers and long-term partnerships in service."
British machinery company Mollings, after a difficult period following its acquisition of Italy's Sasib in August 2003, has recently returned to a positive trajectory. In July 2004, the British supplier announced a restructuring of its tobacco machinery division, including merging the US-based Sasib into Mollings' Richmond plant, and integrating Mollings' modification division, Molmac, into its Sandton and Czech plants. Sasib ceased development of flip-top mechanisms and closed its joint venture with Mollings in Kunming, China. This restructuring resulted in 310 job losses and further inventory reductions, leading to annual cost savings of approximately £7 million. In the first half of 2005, Mollings' tobacco machinery division reported sales revenue of £31 million, compared to £30.5 million in the same period of 2004. Operating profit excluding restructuring costs was £0.8 million, compared to an operating loss of £1 million in the same period of 2004.
However, the division’s main sales were driven by spare parts and services, and as the company noted, revenue from spare parts and services exceeded that of 2004, while orders for new machinery remained low. The restructuring of the business reflects the decline in demand.
