BPI chief warns of restructuring as costs pile up
PACKAGING industry veteran Cameron McLatchie has criticised European Commission tariffs for protecting inefficient competitors and fuelling petrochemical giants’ profits.
The chairman of Greenockbased British Polythene Industries,unveiling a 15% drop in pre-tax profits to £11.5m, warned of a new round of restructuring which will hit the group’s 2100 UK staff, a sixth of them in Scotland.
McLatchie confirmed the c o m p a ny ’s wa r n i n g last December of “challenging market conditions including significant increases in raw material costs and patchy demand from certain sectors”. He said: “BPI has previously adapted to market changes and opportunities and this experience will hold us in good stead.”
However, 2008 has begun with “record raw material and energy prices”, the chairman said.
The shares, which have halved in the past year, lost almost 5% to close at 263.5p yesterday.
In January the EC granted BPI a reduction in the 8.4% anti-dumping duty on thin bags from China, where BPI has been manufacturing since 1994. But its tariff is still 4.3%.
McLatchie said BPI was now manufacturing for the EC market only those products that did not attract the import duty, and diversifing the sales territories for those that did, with new customers in the Middle East, North America and Australasia.
He commented: “The decision by the EC to impose duties on the importation of goods by an EC manufacturer from its Chinese based subsidiary sends a clear message to potential investors in China, and brings into question the issue of globalisation of manufacture. British Polythene has done more to modernise its manufacturing base than most of our EC competitors, yet it is these competitors who are now being protected by arcane regulations implemented after considerable political pressure from interest groups determined to maintain the status quo of uncompetitive EC manufacture. It is hard to see how this benefits European consumers.”
BPI has also been adversely affected by rules recently imposed on exporting companies by the Chinese authorities relating to recoverability of VAT on imports. “This has had an impact on our cashflow and margin in China as we import almost all of our raw material,” McLatchie said. “It is inevitable that the EC duty and the new Chinese VAT regulations will have a detrimental effect on the performance on our Chinese site in the short term as we reposition our sales efforts.”
McLatchie also called on the EC to lift polymer import tariffs. “The price of polyethylene polymer, our major raw material, has now reached unprecedented levels … The prices of these oil derived byproducts seem to have lost their relationship to the price of a barrel of oil, as the cash margin between a tonne of oil and a tonne of polyethylene has almost doubled in five years. When one tonne of oil cost £150, one tonne of lowdensity polyethylene cost £500. Now one tonne of oil costs £350, and l ow - d e n s i t y polyethylene costs over £1000.”
McLatchie added: “It is no coincidence that major oil and petrochemical companies are reporting record profits.
“It would seem an appropri- ate time for the EC to consider dropping tariffs on polymer imports into the EC.’
He said the consumer was being indirectly hurt by increased packaging prices, the EC packaging industrywas fighting imports of finished product, and “the only client group being protected are the mainly integrated petrochemical companies who seem perfectly able to take care of themselves”.
Chief executive John Langlands said of the threat to jobs: “We will have to look at matching our capacity with sales in some of our more traditional businesses.”
The dividend is held at 22p. Group pension scheme deficit almost halved to £18m.