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Sun Capital Partners Raw Materials Opportunity Analysis. Luis Pacheco: Director of Sourcing February 17 th 2011. Agenda. Executive Summary Approach Potential Savings Findings Risks and Opportunities Next steps. Executive Summary. The Current Situation

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sun capital partners raw materials opportunity analysis

Sun Capital PartnersRaw Materials Opportunity Analysis

Luis Pacheco: Director of Sourcing

February 17th 2011

agenda
Agenda
  • Executive Summary
  • Approach
  • Potential Savings
  • Findings
  • Risks and Opportunities
  • Next steps
executive summary
Executive Summary

The Current Situation

  • Split of resin/film spend is 50% Europe,47% America, and 3% Asia.
  • Many locations make it challenging to leverage global purchasing
  • The top 5 resin materials, PE, PS, PP, Nylon, and PET account for 93% of spend
  • Work on synergies has already started, typically “2” company projects
  • Different operational situations may dictate different priorities e.g. cash flow needs vs. cost
  • Current market conditions: volatile commodity market leading to increasing costs

The Opportunity

  • Potential savings of $8.6M to $13.7M identified with an additional$3.3M to $6.9M improvement in Working Capital
  • Quick Wins by eliminating price inconsistencies, some supplier consolidation, and improved payment terms
  • Additional opportunity if we expand into other direct and indirect categories
  • Future review of technical cost reduction to be considered
approach
Approach
  • Reviewed high level direct material spend from packaging companies buying polymers… total spend of $922M
  • Focused on resin and film which gave combined spend of $581M… 63% of direct material spend reviewed
  • Inks, plastic components, and other items to be analyzed later
  • Collected, cleaned, and standardized detailed data to analyze resins and film
  • Completed calls to clarify doubts on data. Key feedback: “suppliers market today” and “ability to buy regional”
  • Generated a first pass database that will be the basis for a broader project
database is basis for estimating s avings
Database is Basis for Estimating Savings
  • Does internal price benchmarking show opportunity for reductions?
  • How much spend can be leveraged by supplier, item, and category?
  • What are the contracted periods and exit restrictions?
  • What are our payment terms?
  • What is the key focus when purchasing?
  • How much of the spend is customer specified? What is required to qualify a new supplier?
  • Are products purchased contractually or spot-buys?

Supply Base

Portfolio Companies

  • How fragmented is the supply base?
  • Is there opportunity to leverage purchasing scale? Regional or Global?
  • What is the range of products offered vs. SCP needs?
  • Are we buying from the right suppliers?
  • What are we buying from distributors that we could buy from manufacturers?
  • Should LCC suppliers be included?
  • What are the supply/demand conditions for that product?

Savings Opportunity

potential savings 8 6m 13 7m 1 5 2 4
Potential Savings: $8.6M - $13.7M (1.5% -2.4%)

$3.8M -$5.6M Long term savings Long approval on $75M

$0.7M - $1.4M

Long term savings

$1M -$2.1M

Mid term savings

$2.5M -$3.7M Short term

savings on $123M

$0.6 - $0.9 Long term savings Long approval on $31M

  • Low percentage savings applied to a large spend makes it an attractive opportunity
  • $2.5-$3.7M can be captured in the short term (less than 6 months)
  • Additional $3.3M - $6.9M improvement in working capital
  • Estimated savings of $8.6 -$13.7M on spend of $581M

1%-2%

1%-2%

2%-3%

2%-3%

closer look at high spend items resin
Closer Look At High Spend Items: Resin
  • Polyethylene and polystyrene give 66% of resin spend. Multiple subgrades within each grade
  • LDPE is the grade with the most spend (37%) within polyethylene
  • PS-GP has 37% of the spend within Polystyrene
price distribution example ldpe resin
Price Distribution Example: LDPE Resin
  • Price spread needs to be filtered before analyzing variation
  • LDPE has 36 resin grades with 70% price spread
  • Removing 13outliersgives a price range of:
    • Max $1,906/ton
    • Min $1,698/ton
    • 12% spread on price
  • Low value outliers were due to purchase of discontinued LDPE grades
  • High values outliersare grades specified by customer, which use specialty additives, and are currently bought from distributors
price distribution example ps gp resin
Price Distribution Example: PS-GP Resin
  • Narrow non-typical price-volume curve for standard product
  • PS-GP has 18 resins grades.
  • Removing 4 specialty outliers
  • Price range of:
    • Max $1,703/ton
    • Min $1,619/ton
    • 5% spread on price
  • High values are grades which need to be approved by customers
  • Terms may be an area we can leverage with volume where price can not
payment terms comparison
Payment Terms Comparison

Note:

Std days = Payments terms

+ Consignment inventory

  • Potential WC improvement for resin and film of $3.3M - $6.9M
    • Low improvement scenario factored with 5 days improvement for Albea, Betts, and Exopack. Famosa improved to 15 days
    • High Improvement scenario factored with 10 days improvement for Albea, Betts, and Exopack. Famosa improved to 30 days
  • Different expectations for payment terms in Europe vs. North America
  • Resin has better terms than films, except for Betts. Typically 10-20 days better.
opportunity to consolidate supplier base
Opportunity to Consolidate Supplier Base
  • Potential to consolidate supplier base, particularly for films.
  • More detailed understanding of technical specification will be needed for making final decisions
opportunities
Opportunities

$6.1M-$10M Medium to Long Term

  • Expand to other categories
    • Inks, solvents, cap ex etc.
  • Third Party Benchmarking
    • Do opportunities exist in non competing industries or via third parties?
  • Low cost country sourcing
    • Exopack has extensive experience in this area
    • Middle East?
    • Asia?
  • Technical Cost Reduction
    • Grades?
    • Specifications?
    • Blend in house?
  • Hedging indexes?
  • Support customer base expansion overseas e.g. China

$2.5M-$3.7M Short Term < 6 months

  • Do not slow down current projects
  • Reduce cost by internal benchmarking
    • 3.8% achieved in 2010 by Exopack
    • Validated from data from 3% to 12% variation in “narrowed” pricing distribution
  • Improved terms
    • Variations across portfolio within same supplier clearly shown
    • Famosa terms $300-$600K
    • Terms may be a bigger lever than cost in some cases
  • Supplier consolidation
    • How can we collaborate to make it a win/win?
  • Bundling
    • Global suppliers but regional market conditions likely to dictate format
risks and concerns
Risks and Concerns
  • Volatile Market Conditions
    • “It’s a nightmare”
  • Suppliers Market
    • Some consolidation in progress
  • Regional Markets
    • What ability do we have to work across continents?... Do suppliers serve all the markets where we are purchasing?
    • Are the same expectations applicable on all locations?... Payment terms in Europe vs. North America
    • Inter Europe regional play
  • Customers
    • Approval process could force us to expose cost reduction
  • Historical Credit Issues
    • Lowest common denominator?
  • Forecasting savings on categories that have been under continuous improvement
    • Historically we have seen cost reductions in resins and films
    • Some synergies between two portfolio companies already started
  • Sun Capital Company Consolidation and Exits
    • Implications?
next steps
Next Steps
  • Determine project approach
    • Internal and/or consultants
    • Select team
  • Determine project scope
    • Resin and film
    • Develop Supplier Strategy
  • Agree buying process
    • Group process
    • Consortium buy
  • Additional opportunities:
      • Plastic components
      • Inks, solvents, and dyes.
      • Printing plates
price distribution example ps hips resin
Price Distribution Example: PS HIPS Resin
  • HIPS has 13 resins grades.
  • Removing 2 outliers gives a price range of:
    • Max $1,856/ton
    • Min $1,749/ton
    • 6% spread on price