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International Metal Decorators Association 2004 Annual Convention

International Metal Decorators Association 2004 Annual Convention

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International Metal Decorators Association 2004 Annual Convention

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  1. International Metal Decorators Association2004 Annual Convention May 20th, 2004 Holiday Inn Conference Center Willowbrook, IL

  2. Packaging Industry Outlook & Review Creating Sustainable Valuable in an Unsustainable Business Environment Timothy P. Burns Cranial Capital, LLC

  3. Agenda • Packaging Industry Overview • Recent Investment Performance • Profitability / Financial Leverage • Consolidation Trends • Key Trends / Market “Hot Spots” • The Labeling & Product ID Market • Creating Sustainable Value • Discussion on Metal Packaging & Decoration

  4. Cranial Capital, LLC Packaging Industry • Is a leading Independent Packaging Industry Research & Advisory concern serving: • Products and Services: • Company and market research reports • Corporate development / strategic development • Merger & acquisition advisory Institutional Investors End User/Suppliers

  5. Packaging Industry Defined • $415 billion plus global market • includes components, machinery, services. • Generally grows at GDP • some sectors growing/declining at multiples of • Virtually everything is packaged! • Exceptions: aircraft, ships and locomotives. • Consumer Packaging: 70% of output. Industrial: 30% of output.

  6. Packaging Industry Defined • Plastics is growing share as a material class • Composite structures are back in vogue • Flexibles are the rage in terms of structure • Systems sales approach is gaining favor: • container, closure, label & filling system. • Outsourcing of historically “critical” activities: R&D, packaging, logistics, warehousing, distribution and fulfillment.

  7. Leading World Packaging Markets(US $ in billions)

  8. World Packaging Market by Material: $400 Billion

  9. Key End Use Segments(United States Market)

  10. Key End Use Segments(United States Market)

  11. Relative Share Price Performance

  12. 1-Year Share Price Performance

  13. 1-Year Share Price Action

  14. Packaging Shares – The Winners(1-Year ended 5/19/04)

  15. Packaging Shares – The Losers(1-Year ended 5/19/04)

  16. 3-Year Share Price Performance

  17. 3-Year Share Price Action

  18. Packaging Shares – The Winners(3-Years ended 5/19/05)

  19. Packaging Shares – The Losers(3-Years ended 5/19/04)

  20. 5-Year Share Price Performance

  21. 5-Year Share Price Action

  22. Packaging Shares – The Winners(5-Years ended 5/19/04)

  23. Packaging Shares – The Losers(5-Years ended 5/19/04)

  24. Profitability & Returns

  25. Financial Leverage

  26. Leverage Remains an Important Factor Aggressive debt-financed acquisitions through the 1990’s have left many companies focused on meeting debt service and maturities Change in Leverage and Ratings Profile A BBB BB B A BB B Source: S&P, Company Reports

  27. M&A Activity Summary

  28. Key Trends and Market Hot Spots

  29. Pursuit of Profitable Growth: • Plastics still gaining share in terms of packaging material mix • flexibles continuing to displace rigids • Dispensing Function • Packaging firms emphasizing features and cost reduction • light weighting • reducing SKUs for line efficiency • elimination of secondary packaging through enhanced print quality • shaping of structure • Incorporating services for pay • package R&D, design and testing • pure research and development • purchasing peripheral components • product filling • warehousing and distribution

  30. Fastest Growing Packaging Markets(Europe and North America)

  31. Recent Results Reflect Margin Pressures Top-line growth continues (aided by currency movement), offset by margin pressures from material cost volatility and increasingly demanding customers and retailers Notes: 1 Calculated as the year over year sales growth for the LTM ended 6/30/03 2 Includes pro forma results for Schmalbach acquisition 3 Year over year sales growth for LTM ended 12/31/02 4 Calculated as EBIT margin for LTM ended 6/30/03 less EBIT margin for LTM ended 6/30/02

  32. Packaging Industry Value ChainOld Business Model End Use Consumers Packaging Customer Pool Self Mfg. Distributors Packaging Converters Outside Services Equipment Suppliers Raw Materials Suppliers Source: Cranial Capital, LLC

  33. Packaging Industry Value ChainNew Business Model End Use Consumers Packaging Customer Packaging Customer Packaging Customer Self Mfg. Materials Science Specialists Equipment/Machinery/Technology Suppliers Traditional Packaging Converters Distributors Outside Services Source: Cranial Capital, LLC

  34. Retail Merchandising Value Chain Brand Owners “Old Model” Packager Suppliers Retail Channels

  35. Retail Merchandising Value Chain Retail Channels “New Model” Brand Owners Packaging Suppliers

  36. “The Axis of Evil” Wal-Mart (The Pipeline) Extreme Purchasing (The Madness) China/Asia (The Suppliers)

  37. Innovation: The New, New Thing • Supplier reductions • Partnerships • TQM • Six Sigma • Supply Chain Management • Reverse Auctions • Innovation • Radical Innovations Hubs  Value Enhancement? Cost Reductions

  38. R&D Spending Drives MarginsR&D Spending vs EBIT Margin (Before R&D) Innovationrequires investment, but typically achieves attractive returns Notes: 1 7 year average 2 As of most recent fiscal year-end

  39. What is Innovation in Packaging? • Line Speed & Light-weighting (2-L’s) • Design & Structure • New or Improved ProcessesIncremental Features: • Enhanced print • Barrier / heat resistance • Closure / Re-closure / Dispensing • Interactivity

  40. Keys to Value Creation • Market & Customer Selection!!!! • The commodity fallacy:making $ in the down & dirty markets • The proprietary fallacy:losing your shirt making unique product! • Being a low-cost producer is not enough! • “Toll Booths”Trade secrets, “IP,” Product Branding.NPD Skills, Bundler, Controlled Distribution

  41. Keys to Value Creation • Size & scale is not the primary requirement for success • Aptargroup • Winpak • Multi-Color • Pechiney Plastic Bottles