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Sun Capital Partners Raw Materials Opportunity Analysis

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

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  1. Sun Capital PartnersRaw Materials Opportunity Analysis Luis Pacheco: Director of Sourcing February 17th 2011

  2. Agenda • Executive Summary • Approach • Potential Savings • Findings • Risks and Opportunities • Next steps

  3. 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

  4. 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

  5. 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

  6. 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%

  7. 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

  8. 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

  9. 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

  10. 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.

  11. 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

  12. 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

  13. 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?

  14. 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

  15. Appendix

  16. Direct Spend Details ($M)

  17. 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

  18. Resin Payment Terms Comparison by Company

  19. Resin Payment Terms Comparison by Supplier

  20. Platts Resin Prices 2007-2010

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