The very essence of the deal is that Hoffmann, a subsidiary of the Hoffmann Neopac group, has purchased from CMP its three tin-making production lines for tobacco packaging at CMP’s factory in Dronten, Netherlands. Hoffmann will have its own cigar and cigarillos tins produced there. The pre-press steps and print process will be completed at Hoffmann’s factory in Thun, Switzerland, thus ensuring the delivery of tinplates of “highly acknowledged printing quality” to Dronten, so the company. Meanwhile, CMP will act as contract manufacturer to Hoffmann so that the production of the tins will remain in the hands of the people who know the Dronten factory inside out.

While Hoffmann is happy to increase its capacity in tin business, CMP’s withdrawal from the marketing and distribution of metal tobacco packaging  allows them “to concentrate on other markets and devote more time to exciting projects in various other segments”, says Phil Smith, commercial director at CMP. The inquiry by Hoffmann was therefore a welcome option and it was quickly obvious, recalls Smith, “that this is win-win situation” for both companies. A final decision was made in late 2011.

Unloved franc

For Hoffmann, which had been looking for a way to increase its production capacity and now also gains the market share from its former competitor, it is a winner, too. “This agreement shows our customers that we are committed to tobacco, and that we put our money where our words are,” says Kurt Luethi, director of marketing and sales at Hoffmann. “We are financially committed to tobacco packaging, which can hardly be taken for granted these days.”

However, the main reason why Hoffmann’s commitment has found its way, of all locations, to Dronten is to be found somewhere else. The ubiquitous financial crisis has indeed also found its way into the sphere of tobacco tin production. To the Swiss company Hoffmann, the deal is an important hedge against its currency risks.  

“We were looking to increase our capacity in a country in the currency union largely because these times call for minimising our currency risk,” says Luethi.

The Swiss franc has become a rather difficult currency, to say the least, to do business in. The franc has appreciated against the euro by 52 per cent between August 2008 and August 2011. By June 2011 economic alarm bells rang storm when the country’s total exports dropped by a value of EUR 3.5 billion, while exports to the EU, Switzerland's biggest trading partner, fell by 15 per cent. Swiss companies had to deal with heavy exchange losses, and some struggling firms even installed “emergency measures” like extending work hours or reduced salaries to cope.  

The franc’s rise was only stopped by verdict by the central bank, the Swiss National Bank, which on 6 September 2011 committed itself to peg the franc to the euro at a minimum exchange rate of 1.20 CHF/EUR, and pledged to buy “unlimited amounts of foreign currencies” to do so. Interestingly, such a measure is supposed to be a no-go in free market economies (remember that China has taken a beating for doing the same); it was defended by calling the value of the franc “a threat to the economy”.

Prudent action, and fast!

	Kurt Luethi: "We live in uncertain times."

As for Hoffmann, would there not have been the option of cheaper manufacturing locations than in The Netherlands? “Yes, of course, we could have also opened a new factory from scratch in one of the low-cost areas of the European Union,” recalls Luethi, “but we have dismissed this alternative. It would have taken much longer to install such a line ready-for-production. Now, we can start producing straight away in Dronten with a team of experienced experts, and so, our customers know what they are getting.”

Of course, the location in Dronten is a very convenient one considering that most of the cigarillo customers in Europe are located in Belgium, Netherlands and Northern Germany. But the speedy completion of the capacity increase has indeed been a decisive factor since currently Europe finds itself in a debt and currency crisis. “At the moment, we live in uncertain times, and no one knows where the situation will be heading,” Luethi summarises the current sentiment.

One thing is certain, though. Should the euro – and, inevitably, the banking system – take a serious hit in the no longer unthinkable event of a Greek default, any company that has their investments wrapped up, will be in a comparably comfortable position. This is why Hoffmann’s takeover of the Dutch production lines may well herald the starting round of many more prudent actions to come in 2012.

Back to the roots for CMP

Finally, what about the factory in Dronten? Unlike with many other takeovers, no jobs will have to be cut there – on the contrary. At CMP, Smith says they have to take on more people to tackle the increase in workload. One, there will be more tin business as Hoffmann shifts their demand to Dronten. Two, there will be more projects which CMP follows in other areas. “In fact, we have to increase the size of our factory by 3,000 square metres to accommodate all the new projects,” reports Smith.

As for the manufacturing agreement with Hoffmann, this type of arrangement is a familiar one for CMP, which started as a contract manufacturer to packaging company CarnaudMetalbox (now Crown), from which it was spun off in 1995. (The “C.M.” in C.M. Packaging actually stands for “Contract Manufacturer”.) Contract manufacturing has since become a much smaller part of the overall turnover of CMP, but it is certainly a line of business that they are still very much involved in. “That’s why the fit with Hoffmann is so good,” concludes Smith.

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