Australia 25 January 2016 -- (From The Australian) -- Billionaire paper and packaging magnate Anthony Pratt plans to launch a new business in Australia to supply recycled cardboard boxes to the booming e-tailing sector, replicating a division of his US operations, which he believes will grow to generate revenues of more than $US1 billion.
The specialty packaging division of Mr Pratt's Pratt Industries USA group, the fifth-biggest box maker in the US that employs about 5100 staff across 120 sites, has secured major contracts to supply the likes of e-commerce giant Amazon, retailer Macy's and the US Postal service with boxes for their online operations.
The division also includes a little known online retailing business called Pratt Plus that allows consumers to buy boxes, office supplies, strapping and other associated packaging items directly from Pratt over the internet.
Pratt Plus generates half of the estimated $US200m in annual revenues generated by Pratt's specialty packaging division.
"It is going to be a monster,'' Mr Pratt said of the specialty business in a wide-ranging interview with The Australian. "I frankly think it is going to be a billion-dollar business in itself. And it will happen in a rush. I think e-commerce is going to be like that.''
"Amazon buys 140,000 tonnes of corrugated boxes a year. And they are growing at 30 per cent per year. The largest corrugated box account in Australia is 36,000 tonnes a year. Just to give you a sense of proportionality.''
But Mr Pratt revealed that Brian McPheely, the Pratt empire's global chief executive, was looking at establishing a similar operation in Australia to supply the e-commerce businesses of leading retailers as part of the Visy paper, packaging and recycling operation.
"We cross-fertilize things between countries. It is one of the things that Brian wants to install in Australia increasingly ... It would be its own business (separate to the US),'' Mr Pratt said.
"Online retailing I believe is about 5 per cent all retail at the moment ... One could guess it is going to be 60 plus per cent of all purchases in the future. So that is big for the box business.''
Currently 70 percent of Visy's customers are in the food and related industries.
Last year Pratt Industries made its first acquisition in California when it bought fruit and vegetable packaging firm Robert Mann Packaging. Seventy per cent of America's fruit and vegetables are grown within 320km of Robert Mann's operations just south of Salinas on the central California coast, an area known as the "salad bowl of America''.
The deal provided Mr Pratt's US business with its first link to Visy's Australian operations as the paper converted into packaging by Robert Mann is being sourced directly from Visy's kraft paper mills in Tumut in the NSW Riverina. The box product produced by the Tumut paper is known as "koala board''.
With exports accounting for 75 per cent of Tumut's production, last year the production capacity of its mills was upgraded to deliver 720,000 tonnes of paper annually, up from a previous maximum of 680,000 tonnes.
Mr Pratt revealed that as part of the upgrade Visy invested $40m two months ago in new capacity to produce white liner paper products used in the interior of fruit and vegetable boxes that will be used by Robert Mann in California. "We are shipping 80,000 tonnes of brown virgin paper out of Australia and now on top of that will be the whites,'' Mr Pratt said, adding that Visy was hoping to get a one-year payback on its Tumut investment. "Longer term, we want to grow the US west coast to integrate Tumut even more and have enough integration that we can build a paper mill in the US on the west coast. It is our hope that one day that will happen.''
Mr Pratt said last year that the California business alone would grow to generate revenues of $1bn for Pratt Industries over the course of the next decade.
Pratt Industries' total annual sales are about $3bn, from which it is making earnings before interest, tax, depreciation and amortisation of about $350 million a year. It has spent more than $US600m on nine acquisitions, factory extensions or new constructions over the past two years and Mr Pratt said there was room for further greenfield expansion around the Robert Mann facility.
Asked about potential acquisitions in the area he replied: "There are also number of sheet plants around Robert Mann that we would be interested in.''
Under a succession plan put in place by his father Richard more than a decade ago, Mr Pratt took ownership of Pratt Industries USA.
His sisters Heloise Waislitz and Fiona Geminder, together with their husbands Alex and Raphael, respectively took control of investment group Thorney and the now listed packaging group Pact.
The Pratt siblings also each own a third of Visy Group, which is co-chaired by the family matriarch Jeanne Pratt.
Last year Mr Pratt put his partner Claudine Revere, who runs a catering company in New York City, on the Visy board.
While he declined to give numbers, Mr Pratt said he was "very pleased'' with Visy's profits over the past year, which have been aided by the fall in the Australian dollar. "Every cent reduction in the dollar is worth about $5m to EBITDA line. It is definitely a good thing for us for the dollar to drop as it is for all Australian manufacturers.
"Demand in Australia is very strong. If you talk to people like Costas or the food exporters, they will tell you that they are booming because of the dollar. The industry seems to be going through a good time at the moment.''
Mr Pratt last year flagged plans for Visy to create a packaging centre of excellence in India as part of the group's work with customers, governments and philanthropic enterprises to support solutions for global food security. It also conducted extensive due diligence for the $100m purchase of an Indian packaging company into which it planned to inject further capital to improve technology and boost capacity.
But the deal was abandoned in the last quarter of 2015 due to a range of issues, including problems gaining assurances from the vendor that he would continue to support the company when it was in Visy's hands. Mr Pratt declined to comment on the Indian transaction, except to say: "Deals often take years to happen.''
"It took us five years to do the Love Box deal (the $100m acquisition by Pratt Industries of the Love Box Company and Lewisburg Container in December 2005). "We went up the aisle many times with false starts. There are always deals starting, stopping. We believe there are opportunities everywhere. We only have 3 per cent of the world's corrugated box market. There is always room for growth.''