Rabobank Rapport En

7/31/2019 Rabobank Rapport En

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Rabobank International

Unpacking the Dutch plasticspackaging industry

Industry analysis


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Introduction

The industry analysis Unpacking the Dutch plastics packaging industry is written by Rabobank to

- Give interested parties an insight into the Dutch plastics packaging industry

- Support relationship management of Rabobank in developing customer relations

The analysis is made in co-operation with VMK, the Dutch Plastics Packaging Association, which is related to NRK, the Dutch Association for the

Rubber and Plastics industry

The analysis is based on various interviews with companies and organisations throughout the plastics packaging chain, and on desk research

The report focuses on mid and large sized producers of plastics packaging

This report can give quick and basic insight in the industry as well as more elaborate knowledge

- The summary gives a two page overview

- The heading of a slide summarises the most important conclusions on the slide

- The main text body and graphs provide more detailed information on the slide topics

The analysis was finalised in April 2012

In the appendices you can find the contact details of the authors of this report

This industry analysis aims to provide insight into the Dutch plastics packaging industry


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Summary (I)

Demand for plastics packaging

Supply of plastics packaging

Plastics packaging producers are positioned between raw material suppliers and producers of all kind of goods. This position is in general relative

weak as: (i) suppliers are predominantly large chemical companies, (ii) customers are for an important part large brand owners and retailers, (iii)

many plastics packaging suppliers are active. We acknowledge the fact that the position will be different per market segment

The plastics packaging industry is highly fragmented: top 50 European producers have a combined market share of 42% of the EUR 50bn

European plastics packaging market. This results in fierce (price) competition, modest margins, drive for economies of scale and ongoing

consolidation. However, given the many types of materials, products and end markets we can identify a variety of niche markets. This downplays

the level of competition in these niches

Plastics packaging market is mostly a local market (range of ~400km). The top 50 European companies have all production facili ties in various

countries. Only pure commodities i.e. shirt bags are produced in low cost countries in Asia and traded globally

The size of the global packaging market is EUR 403bn and the size of the Dutch market is EUR 3.6bn (best guess). Paper/board is the most used

material while plastics represent the highest value. The food & beverages industry is the most important end market for plastics packaging

(~60%)

Plastics packaging has to meet many requirements regarding transport, handling, marketing, informing and usage. These requirements show the

versatility of packaging functions. On the other hand, most packaging users regard it as a low interest product

The long term demand for plastics packaging is relative stable: large scale substitution between packaging materials is not expected. We see long

term opportunities for plastics packaging as consumers, brand owners and retailers are constantly changing. Plastics packaging could increasingly

become a silent sales man: (i) need for more individualisation of packaging and (ii) brand design to stand out and improve customer loyalty

Short term demand is GDP driven: more production and consumption result in more packaging. Thus packaging demand is cyclical but not as

cyclical as many other industrial sectors. The average beta (relation between GDP and production) is 1.5. At turning points in the economy it can

go up to 4.5 caused by the supply chain/inventory effect. Given the weak economic forecasts we expect 2012 demand for plastics packaging to

decline marginally while margins can be pressured due to still high raw material costs and rising labour costs


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Summary (II)

Supply of plastics packaging (cont)

Sustainability issues

A major part of discussion on plastics packaging is on sustainability issues. Plastics packaging suffers from a poor public image i.e. plastic soup.

On the other hand we see many clear advantages of plastics packaging which we think are underexposed in these discussions. Four sustainabilityperspectives are relevant in the plastics packaging industry: (A) input of raw materials, (B) production, (C) usage, and (D) after-use.

Sustainability will only be effective when all four come together

(A) Bioplastics in the packaging industry is promising. However, to have impact and to become price competitive scaling of production is needed.

Despite many initiatives we dont expect this to happen in the next decade. Current annual growth rate is 20%. If this high growth is maintained

then still only 4% of the traditional plastics are substituted in 2030. (C) Significant supply chain improvements are possible if (plastics) packaging

is better used and further improved. Resulting in less waste and lower carbon footprint in especially the food chain. (D) In the after-use phase we

see various options. There is no best solution yet and they must be considered on their economic impact, carbon footprint impact and

technological constraints and the outcome will differ per case

The Dutch market for plastics packaging is small compared to the Dutch economy. Most Dutch producers are SMEs which serve the Dutch and

neighbouring markets. A limited number of producers have more than EUR 50m sales

The production of plastics packagings is characterised by: (i) high raw material costs (average 45%) and (ii) capital intensive production. Raw

material prices are volatile which results in high sales and margin volatility. It also makes procurement and sales (contracts) even more

important. The capital intensity results in a drive for scale and in margin volatili ty as capital costs are fixed

Strategy of plastics packaging producers

Strategy of companies is largely dictated by: (i) types of products produced (commodities vs specialties), (ii) company size (large vs small), (iii)

current positioning (Customer initimacy, Product Leadership, Operational excellence)

We see several options for: (i) growth strategies i.e. international expansion, integration and aggressive pricing and (ii) growth methods i.e. M&A,

nearshoring and focus


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I. At a glance

II. Demand

III. Supply

IV. Sustainability

V. Strategy

Plastics packaging producers are positioned between raw material suppliers and producers of

all kind of goods

Size of global packaging market is EUR 403bn and in The Netherlands EUR 3.6bn.

Paper/board is most used material while plastics represent the highest value

Packaging is the most important plastics application and widely used in the food and

beverage industry

Plastics packaging suffers from a poor public image. This is mainly due to (perceived)

sustainability issues

VI. Appendices


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Production chain

* Packaging machine manufacturers, label suppliers, ink suppliers** Contract packers and fillers, wholesale, distributors, packaging designers

Plastics packaging producers are positioned between raw material suppliers and producers of all kind of

goods

Retailer(consumer goods)

Consumer Recycler

Raw materials account

for 45% of production

costs of average plastics

packaging; commodity

plastics packaging up till

75%

Mainly commodity

chemicals like PP, PE,

and PET

Producers are large

international chemical

companies i.e. SABIC

and Lyondellbasell

Chemical companies are

important for

development of new

plastics and new

applications of plastics

Distinction between

commodity and specialty

plastics packaging

Also important distinction

between smaller and

larger producers

Variety plastics packaging

types requires variety of

production technologies

Production process of

plastics packaging is

capital intensive

In general the producer of

the goods to be packed

demands the packaging

i.e. brandowner, industrial

company

67% of plastics packaging

is consumer packaging

and 33% industrial

Packaging costs are

modest part of total costs

making packaging a

relatively low interest

product

Large Dutch consumers of

packaging pay taxes

(Verpakkingsbelasting) of

in total EUR 80-85m p.a.

These taxes end in 2013

In the consumer

packaging market the

retailer plays an

important role as the final

destination is mostly the

supermarket

The retail industry is

consolidated with large

chains dominating the

Dutch market

On top of that, private

labels of retailers are

gaining market share

Like the producers of

goods they expect

packagings to meet their

specific demand

Packaging is part of the

average daylife of

consumers

A Dutch consumer opens

seven packagings a day.

Which is 140,000

packagings in a life time

Consumer preferences are

constantly changing and

have impact on

packagings

Packaging design can

persuade consumers to

buy specific products and

is seen as silent sales

man

Final link in the

production chain is

recycling and waste

processing

Dutch plastics recycling

market is fragmented

The after use phase of

plastics packaging is

becoming more and more

important because: (i)

increased awareness on

environmental issues

(carbon footprint), (ii)

shortage of raw materials,

and (iii) upward pressure

on raw material prices

Raw materialsuppliers

Plasticspackaging

producer

Producer ofgoods

(industrial, or consumergoods)

Others**Others*


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Plastics39%

Paper and

board34%

Metal12%

Glass10%

Wood5%

Key figures (I) packaging

Dutch packaging market in weightDutch packaging market in value*

Source: Univerity Twente; Nedvang, 2010; Rabobank

Global packaging market in EURbn

Size of global packaging market is EUR 403bn and in The Netherlands EUR 3.6bn. Paper/board is most

used material while plastics represent the highest value

Destination of Dutch packaging

production in valueOrigination of packaging in Dutch

market in valueGlobal packaging end market in value

Source: World Packaging Organisation, 2009; Rabobank

* Dutch packaging industry lacks adequate data on market size. Rabobank has used several indirect sources to estimate market size. We estimate the Dutch market at EURbn 3.6 in 2011 (best guess)while Zakboek Verpakkingen estimates market size at EURbn 5.5 in 2007

Asia

122

30%

North America

10927%

Western Europe

10225%

Eastern Europe

287%

Other

4211%

Dutch

production

58%

Import

42%

Bron: Zakboek Verpakkingen, 2007

EUR 403bn EUR 3.6bn

Source: Zakboek Verpakkingen, 2007 Source: Zakboek Verpakkingen 2007

Plastics17%

Paper andboard43%

Metal

7%

Glass19%

Wood15%

Dutch

market

67%

Export

33%

Source: Zakboek Verpakkingen 2007

Food

38%

Beverages

18%

Medical and

pharma

5%

Personal

care3%

Other

36%


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Packaging

39%

Building/construction

21%

Automotive

8%

Electrical

and

electronics

6%

Other

27%

Key figures (II) plastics packaging

: relative strong growth

(i) Market segmentation plasticspackaging: end user in weight

Packaging is the largest end use ofplastics in Europe in weight

Source: Plastics Europe, 2012

Plastics consume ~7% of world oil andgas production in weight

Packaging is the most important plastics application and widely used in the food and beverage industry

(ii) Market segmentation plastics

packaging: end market in value(iii) Market segmentation plasticspackaging: product types in value*

(iv) Market segmentation plasticspackaging: polymer use in weight

Source: NRK; ICPP, 2011Source: NRK; Hopewell; European Commission, 2009

Food andbeverage

57%

Medical and

pharma9%

Personal

care8%

Household

12%

Other

14%

Source: PMCF; data based on US market Source: Applied Market Information, 2011Source: PMCF; data based on US market (value); other datasuggest that F&B share is higher

LDPE, LLDPE

26%

HDPE

17%

PP

23%

PET

20%

PS

9%

PVC

3%

EPS

1%

Other

1%

Rigid: ~60%Flexible: ~40%

Bottles

25%

Bags

24%Pouches

15%

Closures

12%

Bulk/other

12%

Film and

sheet

9%

Blister

4%

46 mtTransport

45%

Energy and

heating

38%

Chemicals

4%

Plastics

4%

Energy for

production

plastics

3%

Other

6%

Consumer

packaging

67%

Industrial

packaging33%

* Note: Accurate data on European situation is unavailable. Industry experts expect share of Bags to be smaller while share of Film and sheet to be larger in Europe


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Public opinion

Some facts

I. The usage of packaging is an outcome of the demand of our

society: more consumption results in more packaging

II. Packaging which litters the streets is not the responsibility of the

packaging industry but of the people throwing it on the streets

III. Sustainability has to be regarded within the entire value chain.

Current use of plastics packaging is in several ways much better

than the next best packaging material (see left figure)

IV. Misunderstanding exists about the way products are packed: why

plastics, why individual packaging, etc? We think better

information can take this misunderstanding away*

V. Some examples underlining this:

- At the supermarket losses of unpacked fruit and vegetables are

26% higher than for pre packed products

- 1.5g plastic film extends shelf life of a cucumber up till 14 days

- 10g multilayer film extends shelf life of meat up till 7 days

VI. Better waste collection and management (Plastic Heroes), lighter

materials, less materials, and new materials (bioplastics) enhance

recycling and useful recovery and can cause less sustainability

issues in the future

Plastics packaging suffers from a poor public image. This is mainly due to (perceived) sustainability

issues

The perception

Impact of potential replacement: substituting plastics in Europe

with the next best packaging material (x times higher)

Source: Denkstatt, 2011; Eurostat

Plastics packaging is often negatively associated with because it...

- ...litters the streets and contributes to the plastic soup

- ...is made out of oil (non renewable)

- ...does not biodegrade

- ...seems to be less sustainable than other packaging materials

- ...is often overused: 79% of English consumers believes products

are over packed (source: Ipsos Mori)

- is poorly recycled

In the end it all comes down to sustainability issues

* See Why are products packaged the way they are: http://www.incpen.org/docs/WPAPTWTR.pdf

Total masses for same

functional units

Energy consumption in

total life-cycle

GHG emissions in total life-

cycle

Plastics Plastics PlasticsAlterna

tive

ma

teria

l

Alterna

tive

ma

teria

l

Alterna

tive

ma

teria

l

x 3.6, or+ 47.6 mt/a

equivalent of:household waste

of 91mEuropeans

x 2.2, or+ 1,240 GJ/a

equivalent of:20m heated

homes

x 2.7, or60.8 mt/a

equivalent of:21m cars on

the road
http://www.incpen.org/docs/WPAPTWTR.pdfhttp://www.incpen.org/docs/WPAPTWTR.pdf


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I. At a glance

II. Demand

III. Supply

IV. Sustainability

V. Strategy

Plastics packaging demand growth was driven by: (i) technological breakthroughs, (ii) social

economic changes; high growth has moderated

Most buyers regard packaging as a low interest product

In a changing world the importance of packaging as silent sales man still increases and will

be benificial to plastics packaging

Short term demand for plastics packaging is driven by GDP with an average beta of 1.5

We expect 2012 demand for plastics packaging to decline marginally while margins are being

pressured due to still high raw material costs and rising labour costs

VI. Appendices


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Long term demand (I)

* See appendices for more detailed functionalities of packaging material and requirements of product types** Primary packaging: packaging that comes into direct contact with the product; Secondary: packaging that facilitates the bundling of the products, makes them easier to handle, and makesdistribution possible: group packaging; Transit (tertiary): packaging that enables to bundle a large number of products for long distance transport

Source: NVC

In 60s-80s plastics packaging demand showed high growth and

substituted other packaging materials in particular glass and cans

Demand propelled by: (i) technological breakthroughs on barrier

functions, laminated plastics, injection molding, coatings, and (ii)

social economic changes: super markets, longer supply chains

Last decade the substitution almost came to a standstill however we

still see opportunities for further demand growth in the long run

In the end, (i) most buyers regard packaging as a low interest

product, (ii) the buyers of packaging are not interested in the

materials but in the functionalities of the materials (see below)

Plastics packaging industry has reached maturity

Importance of packaging depends on the product that is being

packed

Demand growth has moderated

Packaging has to meet many requirements*

Plastics packaging demand growth was driven by: (i) technological breakthroughs, (ii) social economic

changes; high growth has moderated. Most buyers regard packaging as a low interest product

60s-80s: introduction and growth High growth Substituting other materials Technological developments Rise of super markets and longersupply chains

90s-current: mature Low growth Highly competitive Price pressure Consolidation

Requirements of:

Production

Distribution

Storage

Requirements of:

Consumer

Retailer

Marketer

Transit packaging**

Secondary packaging

Primary packaging

Product

Requirements of the product

Requirements of legislation

Shareo

fpac

kag

ing

in

va

luea

dded

ofpro

duc

ts

4%8%

24%

57%

0%

10%

20%

30%

40%

50%

60%

Chemicalcommodities

Packag ing total Food andbeverages

Cosmetics


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Long term demand (II)

Source: PIRA survey, 2009

Plastics packaging can fill in the need for

- More individualisation of packaging

- Brand design to stand out and improve customer loyalty

Furthermore, plastics packaging could gain market share in other

products segments i.e. baby food, cans, sauces

We see two negative aspects of plastics packaging

- Poor image on sustainability (see earlier comments on Public

opinion)

- Cheap image which would not be suitable to high end and

luxury products

Western consumers have changed focus since 2008-2009 crisis

- Value for money: highly price sensitive

- Simplicity: less complex lifestyles

- People, not things: family and friends are increasingly important

- Values: value trust and concern about carbon footprint

- Convenience: products to last, and to be available locally

Consumers target groups are hard to reach: 70% buy decision is

done on the spot, 30% of new products are not recognized, shelves

become more crowded: average supermarket 20,000-25,000 itemsSource: Euromonitor; ICIS, 2011; F. Koopmans, Kracht van verpakkingen

Increased competition between brandowners and private labels

Increased brandstretching: more products under one label

Focus on sustainability: 30% of consumers is willing to switch to

more sustainable supermarkets. Sustainability strategy goals

- Unilever: in 2020 50% water, 50% CO2, 50% waste reduction

- Tesco: in 2010 25% less packaging

- Wal Mart: in 2013 5% packaging reduction

Note: at this moment in industrial endmarkets sustainability is

seldom an main issue or selling point

Major drivers for future growth of packaging industry

Plastics packaging can be the ultimate silent salesman

Consumers' preferences change

Retailers and brand owners change

In a changing world the importance of packaging as silent sales man still increases and will be benificial

to plastics packaging

Unimportant Critical

Older population

Recycling

Smaller pack sizes

Smaller households

On-the-go lifestyles

New packaging materials

Brand enhancement/differentiation

Convenience

Health awareness


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Short term demand (I)

* Data on the Dutch plastics packaging industry is limited. We therefore assume that above figures also apply to the Dutch plastics packaging industry

Demand is limited cyclical

Demand for packaging is positively correlated with production and

consumption: the more we produce and consume the more

packaging is needed

Most important end markets for plastics packaging are limitedly

cyclical: food and beverage, pharma/medical and personal care

(except industrial end markets)

Average beta - relation between GDP and plastics packaging

production in volume - is: ~1.5*

- Plastics packaging production is cyclical: beta >1...

- ...though not highly cyclical i.e. beta chemicals >3

Beta can move up to 4.6: production is not always in line with end

demand. This a result of the supply chain/inventory effect

- Having limited coordination, communication, information in the

supply chain

- Made-to-stock production

- Holding safety stocks

- Overreacting to backlogs

Sales and margins of the plastics packaging industry is - next to

final demand - also highly dependent on raw material prices

Important issues for individual companies should therefore be

- Procurement strategies

- Inventory levels

- Competitive position: (un)ability of passing on price increases

Short term demand for plastics packaging is driven by GDP with an average beta of 1.5

Germany: YoY GDP growth and YoY plastics packagingproduction growth in volume

Source: Eurostat

France: YoY GDP growth and YoY plastics packaging production

growth in volume

Source: Eurostat

Plastics packaging

GDP

GDP

Plastics packaging

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%


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Short term demand (II)

GDP

C

onsumer

spen

ding

I

ndus

trial

p

roduc

tion

P

roducers

prices

100 100 100 100

96,5 97,4 91,1 98,9

98,0 97,8 96,9 100,6

99,3 96,9 99,9 105,5

98,6 96,1 98,8 ?

We expect 2012 demand for plastics packaging to decline marginally while margins are being pressured

due to still high raw material costs and rising labour costs

Sales: volumes x selling prices

Simplified model for determining the profitability of the plastics packaging industry (2008 = 100)*

Costs: variable + fixed Margins

Indicators

- =

PEprices

PPprices

Energy

pr

ices

(APX)

La

bourcos

ts

P

rice

leve

l

(

infla

tion

)

100 100 100 100 100,0

70,5 71,9 49,1 102,8 101,2

100,9 105,2 69,7 104,0 102,5

108,5 115,3 91,0 105,4 104,9

? ? ? 107,4 107,0

2008

2011

2012F

2009

2010

In

dica

tive

direc

tion

* Notes: This is a simplified model which doesnt take into account changes in stock levels, utilisation rates, (in)flexibility of production factors etc. The model can be used to qualify and discussimportant sales and margin drivers. Sources: Datastream, CBS, Consensus Forecasts. Producers prices: refers to selling prices of Dutch producers of Rubber and plastics. PE prices: Polye LDPE-GPFilm, Spot FD NWE E/KG. PP prices: PP Copolymer,Spot FD NWE E/KG. Energy (APX): APX TTF-Hi All-Day Index E/MWh - PRICE INDEX. Prices are all average prices in a year

Prices seem to remain at a high level. However this depends onmany variables: (i) demand: economy, stock levels, expected pricedevelopment, (ii) supply: supply strategies, temporarily shutdowns, (iii) oil prices: OPEC cartel, political situation M-E, highcapex need of oil majors, EUR-USD exchange rates, high Asiandemand

Producers have been able to pass on highercosts in recent years. Most important driversfor lower sales have been lower volumes

Source: Rabobank analysis


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I. At a glance

II. Demand

III. Supply

IV. Sustainability

V. Strategy

Fragmented and highly competitive market is likely to witness ongoing consolidation and is

squeezed between strong suppliers and customers in the value chain

Competitive position is partly determined by the company size and by the type of plastics

packaging products which are being produced

Largest part of production costs is related to raw materials. Raw material prices are volatile

and related to oil prices causing volatilty in companies sales and margins

Plastics packaging industry is capital intensive like most manufacturing industries however

significantly less than process industries. Related to capital intensity is the utilisation risk

European plastics packaging industry is highly fragmented and is consolidating however on a

company level we identify many niche markets. Dutch producers are mostly SMEs which

serve the Dutch and neighbouring markets

Producers are mainly situated in the South and East of The Netherlands, and in the West near

Westland region

VI. Appendices


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Competition (I) 5 forcesFragmented and highly competitive market is likely to witness ongoing consolidation and is squeezed

between strong suppliers and customers in the value chain

Buyers of plastics packaging are for a significant part

large food & beverages producers

These companies hold a strong position towards thefragmented packaging industry

Packaging however is seen as a way to differentiatefrom competitors

Some customers also have in-house productioncapabilities and could pose a threat to packagingactivities

Customers

Entry barriers are medium high as knowledge andrelative high capex is needed to be really competitiveand to gain scale

E-European production has entered the W-Europeanmarkets in last years

Asian products entering the European commoditymarkets

Suppliers Industry competition

New entrants

Substitutes

We regard plastics packaging for the most part ascommodities: high volumes, highly competitive

In W-Europe a large number of producers are active

This environment results in: (i) ongoingconsolidation, (ii) margin pressure

Producers can deliver value added by customerintimacy and/or product leadership

Substitution between packaging materials poses little

threat to plastics as other packaging materials havebeen substituted to plastics i.e. glass bottles arereplaced PET bottles

Plastic packaging growth outpaced growth of otherpackaging materials

In the long run bioplastics might substitute regularplastics

Concentrated industry of international plastic resin

suppliers: large chemical companies and chemicalwholesalers

Compared to the more fragmented packagingindustry suppliers hold a strong position

Low importance

High importance


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Competition (II) large versus small

European or global market

Serving large international clients in many geographic

markets

More diversified: several plastics packaging materials

and/or other packaging materials, several production

technologies

Costs

Higher raw material costs

Higher production costs, however larger flexibility in

costs in the short run, lower overhead costs

Offshoring/nearshoring more difficult: (i) operational

excellence is a difficult strategy, (ii) span of control

Smaller local market (range of 400km) and niches

Serving clients which demand specific

service/products and/or are not the prime clients of

large producers

More specialised: limited plastics packaging materials

and production technologies, possibly offering more

products via wholesale

Competitive position is partly determined by the company size...

Markets

Large plastics packaging producers Small plastics packaging producers

Lower raw material costs due to quantity contracts

Lower production costs due to large machinery and

equipment, and more specialised operating personnel

Offshoring/nearshoring in search for lower production

costs

Operational excellence: most obvious strategy

making use of economies of scale

Product leadership: possible on several products,

large company has more R&D resources

Customer intimacy: more difficult as large companies

are less flexible

Operational excellence: difficult as production costs

are less competitive

Product leadership: possible on limited number of

products, limited R&D resources

Customer intimacy: preferred strategy as small

companies offer more flexibility and are a better

match for smaller clients

Strategy


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Competition (III) commodities versus specialties

Prices more cost push

Price drivers: raw material costs, supply/demand balance

Cost driven (capex, scale)

Process technology driven

Low margins and high volumes

Cyclical

Production

Many competitors, large markets

Competition on price, market share and capacity utilisation

Medium to high entry barrier: know how and technology are

easily accessible, large amount of capital needed

Low switching costs: many suppliers, easy switching

to other supplier

Standard terms

Less service needed

Prices more demand pull

Price drivers: perceived value added

Larger part labour costs

Fast and flexible production capacity needed

Made-to-order, short production runs

More difficult to recycle

Marketing driven (PMCs)

Product research oriented

High margins and low volumes

Less cyclical

Less competitors, smaller markets (niches)

Competition by differentiation

High entry barrier: long term experience needed,

advanced technology, patent protection

Higher switching costs: few suppliers, customers

production has to be adapted

Longer term customers with specific commitments

Customized package is essential

...and by the type of plastics packaging products which are being produced

Pricing

Business model

Competition

Commodity plastics packaging Specialty plastics packaging

Clients

Larger part raw material costs

Long product cycles and limited product range

Made-to-stock, long production runs

Easier to recycle

Operational excellence (best total cost), or customer

intimacy (best solution)

Product leadership (best product) or customer

intimacy (best solution)Strategy


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45%

25%

15%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Raw materials Labour Energy Other

Production (I) production cost distribution

Differences in raw material costs Distribution of production costs

Source: Interviews; The packaging federation; CBS

Most important part of production costs are raw materials

However differences exist between companies and in t ime

- Related to type of plastics packaging: commodity type of plastics

packaging have a larger share of raw materials costs when

compared to specialties

- Related to the company size: larger companies benefit from

economies of scale resulting in better procurement and lower

contract prices

- Related to the raw material prices: raw material prices are

volatile (see next sheet)

- Related to technological progress: producers are able to use less

raw materials while keeping functionalities at the same level i.e.

lighter and thinner packaging

Distribution in production costs is relative stable in the long run

- Labour costs depend on: (i) wages (tracking somewhat above

inflation) and (ii) on number of employees per ton output which

is expected to be lower in time due to technological progress

- Energy costs are related to (i) energy prices (oil and gas) and (ii)

more efficient production technologies

Largest part of production costs is related to raw materials

20-7

5%

20-3

5%

7-2

2%

: average % of production costs

: range in % of production costs


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20

Production (II) raw materials

* Difference (i) in quoted spot prices (like ICIS) and prices paid which are an outcome of negotiations, (ii) in delivery conditions of prices like in- or excluding transport, insurance, service etc.

Chemical price volatility Chemical and oil prices (2007 = 100)

Raw material prices are volatile and related to oil prices causing volatilty in companies sales and

margins

0

50

100

150

200

250

5-1-2007 5-1-2008 5-1-2009 5-1-2010 5-1-2011 5-1-2012

Oil

PVC

PP

LDPE

Oil: Crude Oil-Brent Dated FOB USD/BBL (EUR)LDPE: Polye LDPE-GP Film, Spot FD NWE EUR/KGPVC: PVC Domestic UK GBP/MT (EUR)PP: PP Copolymer, Spot FD NWE EUR/KGSource: Datastream

Most important raw materials are chemical commodities i.e. LDPE,

LLDPE, HDPE, PP which tend to track the direction of the oil price

Chemicals prices also influenced by

- Demand: economic activity, speculation i.e. forward buying,

substitution between polymers

- Supply: capacity, temporarily shut downs, supply strategies

- Other: EUR-USD rates (USD quoted commodities)

Volatilty of chemical prices is high (though not as high as oil):

- YoY price variations of 20% are common resulting in variations of

-10% or +10% in sales if prices are passed on

- Inventory level and consequently the procurement strategy of

companies are important as they can save the day

- Volatility can ultimately result in serious margin pressure or relief

Chemical companies and producers of plastics packaging have an

ongoing discussion about variations in European and Asian prices

- Plastics packaging producers argue that Asian prices are most of

the time significantly lower and result in a competitive advantage

of Asian producers of plastics packaging

- Chemical companies argue that listed prices are not comparable

between regions* and that Asian producers benefit from lower

costs of labour and investments

- Rabobank doesnt take sides and thinks it is a fact that Asian

producers are becoming more and more serious competitors


21/49

21

8%

62%

46%

57% 57%68%

73% 76%79%

0%

20%

40%

60%

80%

100%

Production (III) capital intensive

High capex need

Investments are needed in capital goods (capex) in order to

produce goods

- Compared to other sectors of the Dutch economy manufacturing

industries are more capital intensive: relative high capex and low

opex, or high capex per employee

- In the Dutch Rubber and plastics industry - of which plastics

packaging is an important part - 73% of capex is related to

machinery i.e. extruders, molds

The initial investments of less advanced machinery is not very high

making it relative easy to start producing. Especially, in the early

days family run businesses started producing plastics packaging.

However state-of-the-art machinery will be significantly more

expensive

Capital intensive (high capex) industries are characterised by

- Volatile margins as costs on capital goods are fixed: low

flexibility of production capacity (low marginal costs)

- Economies of scale: capex per good produced is lower when

scale is larger

Capex in plastics packaging industry per employee is - compared to

other manufacturing industries - up to par. Process industries like

chemical and oil industry are much more capital intensive

Plastics packaging industry (part of Rubber and plastics) is capital intensive like most manufacturing

industries however significantly less than process industries

Machinery share in capital equipment

Capital equipment per employee (in EURk)

Source: CBS, 2010; Rabobank

16186 92 120

183 259

643

959

-

200

400

600

800

1.000

1.200

Source: CBS, 2010; Rabobank


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22

Production (IV) utilisation riskRelated to capital intensity is the utilisation risk which is another way of expressing volatile margins and

low marginal costs

Utilisation

No overcapacityEnough demand tofully fill capacity

Overcapacity

Capacity cannot befully filled

Production isscalable, so

reduced output

Utilisation risk option tree: plastics packaging producers have to deal with utilisation risks

Production is kept

at full output

Only originalproducts can be

produced withovercapacity

Other productscan be producedwith overcapacity

Price is keptconstant and

some producedunits are not sold

Price isdecreased to sell

all produced units

Capacity is usedfor other products

own company

Capacity is usedfor other products

of other marketplayers

No additional (under)utilisation risk costs

Share of fixed costs

Share of fixed costs

+ variable costs+ warehousing

+ obsolescence costs

Reduced margin for all

units sold

Low margin differencebetween original andother product

Low margin differencebetween original and3rd party product

Resulting underutilisation risk costs

Source: McKinsey; Rabobank


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23

Suppliers (I)- Europe

* Rabobank estimation based on Eurostat 2008 data and calculations on volume and selling prices

Fragmented industry with many niches

Top 25 European producers by European plastics packaging

sales in EURm (2010)

Source: AMI, Plastics packaging producers, 2011

Highly fragmented European plastics packaging industry (EUR

50bn*)...

- Top 25 companies: 31% combined market share

- Top 50 companies: 42%

...resulting in a competitive enivironment especially in commodity

packaging

The industry is consolidating fast as most major companies have

acquired competitors in last years in order to

- Make use of economies of scale: procurement, production, sales

- Gain market share and/or become market leader which could

result in higher margins

- Focus on core activities (ongoing investments and divestments)

Listed plastics packaging producers have a stable performance in

last 5 years: average EBITDA margin is 12%

However, given the many types of materials, products and end

markets we can identify a variety of niche markets. This downplays

the level of competition in these niches

Furthermore, plastics packaging market is mostly a local market

(range of ~400km). Top 50 companies have all production facilities

in various countries

Only pure commodities i.e. shirt bags are produced in low cost

countries in Asia and traded globally

European plastics packaging industry is highly fragmented and is consolidating however on a company

level we identify many niche markets

0 500 1000 1500 2000 2500

Amcor (Aus)

Alpla-Werke (Au)

Sealed Air Corporation (US)

Aptar Group (F)

Linpac Group (UK)

RPC Group (UK)

Constantia Flexibles (Au)

Klockner Pentaplast (G)

Promens Hroup (Ice)

APPE (UK)

Bericap (G)

Grupo Armando Alvarez (Sp)

Mondi Group (UK)

Pregis Corporation (US)

Wihuri Oy Wipak (Fin)

Schoeller Arca Systems (NLD)

Rexam (UK)

Greiner Packaging (Au)

Nordenia International (G)

Trioplast Industrier (Swe)

Papier Mettler (G)

Clondalkin Group (NLD)

Bemis Europe Flexible Packaging (US)

British Polyethene Industries (UK)

Bischof + Klein (G)


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24

Suppliers (II) The Netherlands

* Estimation based on: (i) volume of plastics packaging in Dutch market according to Nedvang in 2010, (ii) an average raw material price of EUR 1,500 per ton and, (iii) distribution of productioncosts. Estimation only includes the production of plastics packaging and excludes other activities in the industry i.e. contract packers and fillers, wholesale, distributors, packaging designers** Note: list is not complete as not all companies post their data at Companyinfo (KvK). Sales is based on most recent available data in Companyinfo of companies with plastics packaging productionas prime activity. The graph excludes Schoeller Arca Systems and Clondalkin Group. Between brackets the name of the international holding/mother

Dutch market relative small

Top 20 Dutch producers by sales in EUR (2010)

Note: list is not complete due to lack of data**

Source: Companyinfo (KvK); company websites

We estimate the Dutch plastics packaging market at EUR 1.4bn*

representing 2.8% of the European market

Dutch plastics packaging industry is relative small compared to

other countries

- Relative to GDP: 4.4% vs 2.8%

- Relative to industrial sales: 4.5% vs 2.8%

- Sales growth in E-Europe but also in Belgium has been

significantly higher

Two of the European top 50 producers are headquartered in The

Netherlands: Schoeller Arca Systems and Clondalkin Group

On the other hand, 26% of top 50 have production facilities in The

Netherlands

Likewise the European market the Dutch market is fragmented

- 150-200 companies produce plastics packaging (source:

Eurostat; Companyinfo)

- Most are SMEs with an average sales of EUR 7-10m and ~40

employees (Source: Eurostat; Companyinfo)

- Most companies serve the local market within 400km range

and/or serve niche markets

Dutch producers are mostly SMEs which serve the Dutch and neighbouring markets

- 50.000.000 100.000.000 150.000.000

1. Combipac [BPI]

2. Oerlemans Packaging

3. VFP [Clondalkin]

4. Kivo

5. Hordijk Verpakkingsindustrie

6. Tredegar Film Products [Tredegar]

7. Polymer Logistics [Polymer Logistics]

8. Plasticum Groep

9. Modiform

10. Scholle Europe B.V. [Scholle Corporation]

11. Krehalon Industrie [Kureha Corporation]

12. Rexam Plastics Europe [Rexam]

13. Constar International Holland [Constar]

14. Graham Packaging (Zoetermeer en Etten-Leur)

[GPC]

15. Houweling International

16. RPC Bramlage [RPC Group]

17. Pregis [Pregis]

18. Dijkstra Plastics

19. Curtec International Holding

20. Rosti Nederland


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25

Suppliers (III) The Netherlands

Plastics packaging producers in industrialised regions

Geographic distribution of top 20 Dutch producers (numbers

refer to the main location of the companies in last sheet)

Source: Companyinfo; company websites

Manufacturing in The Netherlands is mainly situated outside the

Randstad: Southern and Eastern part of The Netherlands. Due to

- Historical context

- Lower land prices

- Availability of labour

- Good accessibility

Likewise, packaging producers are also situated in these regions

Furthermore, we identify a cluster of packaging companies near

Westland. The horticulture in glasshouses is concentrated in this

region

Producers are mainly situated in the South and East of The Netherlands, and in the West near Westland

region

1

3

6

4

7 8

9

10

11

11

12

2

15

16

17

18

13

20

145

19


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I. At a glance

II. Demand

III. Supply

IV. Sustainability

V. Strategy

VI. Appendices

Four sustainability perspectives are relevant in the plastics packaging industry: Input,

Production, Usage, and After-use. To be effective all four(!) have to come together

Bioplastics in packaging industry is promising however to have impact scaling of production is

needed. Ongoing discussion on environmental pros and cons: entire supply chain has to be

considered

Low hanging fruit: improve supply chains by using (plastics) packaging better. This results in

less waste and lower carbon footprint especially in the food chain

Recycling and recovery of plastics packaging is going into the right directions however manymore steps have to be taken: better sorting methods, better plastics feedstock and new

applications

In the after-use phase we see several options. There is no best solution yet and they must be

considered on their economic impact, carbon footprint impact and technological constraints

and the outcome will differ per case


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27

Sustainability framework

* We have not the intention to address all possible sustainability issues regarding plastics packaging production. We only focus on the ones which are best suited for underlying report. See for a morecomprehensive list of sustainability indicators: UN, Indicators of sustainable development, 2002** Letters refer to explanation on next sheets

Four sustainability perspectives are relevant in the plastics packaging industry*: Input, Production, Usage,

and After-use. To be effective all four(!) have to come together

Input

(raw materials)

Production

(production process)

Usage

(packaging functionalities)

After-use

(collection, re-use,recycling, recovery,

disposal)

Bioplastics

Substitutes

Lighter/less plastics in

packaging

Energy efficient production

Protecting materials from

damaging

Preserving food and

beverages

Optimising supply chains

Informing consumers and

handlers

Policies, initiatives and

projects

Packaging waste as

feedstock: recycling, energy

recovery

Problem

reduction

Sustainability framework*

Packaging

Mainsustain-ability issues

BA C D

Global sustainability problems...

Raw material shortage

Increasing global population and rising incomes

Increasing emissions of CO2 and GHG

Increasing waste problem

...and contribution of plastics packaging

Plastics packaging production consumes raw materials and energy

More consumption and a higher welfare result in more plastics packaging

Production and after-use of plastics packaging result in emissions

Plastics packaging is a fare part of total waste; especially as the supply chain is not

closed resulting in littering streets and environment (plastic soup)

**


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28

0

100

200

300

400

500

600

700

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Input

Considerable production growth needed of bioplastics (annual

production in mt)

Source: Rabobank analysis based on European Bioplastics; ICIS; PlasticsEurope

Bioplastics in packaging industry is promising however to have impact scaling of production is needed.

Ongoing discussion on environmental pros and cons: entire life cycle has to be considered

Bioplastics: biodegradable and biobased plastics are not the

same

Potential for bioplastics in packagings is large

Biobased largest potential and is expected to outgrow biodegradable

Driven by marketing and footprint* strategy some multinational F&B

companies are already using bioplastics i.e. Coca-Cola (Plant Bottle),

Danone (PLA cup), Heinz (bioPET)

To have really impact three key issues must be addressed- Scaling of production to ensure feedstock and become more price

competitive**. Main production is expected to be outside Europe.

38% growth p.a. needed (!) to substitute 84% of plastics in 2030

- Improving the functionality i.e. barrier function

- Ensuring biomass with no impact on food supply/environment

Global plastics production

2010: 265 mt plastics production

2010-2030: CAGR 4% 2030: 581 mt plastics production

Optimistic scenario 2010: 0.7 mt bioplastics production

2010-2030: CAGR 38%

2030: 488 mt bioplastics production 2030: plastics-to-bioplastics substitution 84%***

Source: Wageningen University

Finished product

Non-biodegradable Biodegradable

Raw

materials Non-

renewable

(partly)Renewable

Traditional PE, PP, PETEcoflex (BASF)

Bionelle (Showa Denko)

Rilsan (Arkema)Sorona (Dupont)

Bio-LDPE (Braskem)Plant Bottle (Coca-Cola)

PLA (Natureworks)Starch based (BIOP)

PHB (Biomer)

* European Bioplastics states that life-cycle analyses show that bioplastics can reduce CO2 emissions by 30-70% (source: ICIS, 2011)** Biobased ethylene glycol (EG) which is used to produce bioPET is estimated to be 30-40% more expensive than petroleum based materials (source: ICIS, 2011)*** According to the University of Utrecht bioplastics could technically substitute 84% of the current polymers**** Source: European Bioplastics: 2010 bioplastics production: 0.7 mt, and 2015E bioplastics production: 1.7 mt

A

Realistic scenario

2010: 0.7 mt bioplastics production 2010-2030: CAGR 20% (current growth rate)****

2030: 22.5 mt bioplastics production 2030: plastics-to-bioplastics substitution 4%


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29

Production and Usage

Use (plastics) packaging to optimise supply chains

Low hanging fruit: improve supply chains by using (plastics) packaging better. This results in less waste

and lower carbon footprint especially in the food chain

Production focusses on using less raw materials

Food losses and waste (kg/capita/year)

From an economic and (sometimes) environmental point of view

using less materials is profitable for producers

- Producers who can operate their machinery as efficient as

possible have a cost advantage in this competitive industry

- Buyers are very interested in lighter packaging: (i) lower prices,

(ii) lower transport costs

- Specialties are mostly priced per m2 while commodities per kg.

This drives specialty producers to manufacture thinner products

Packaging machineries can lower raw materials and energy input.High price of this machinery is offset by lower production costs

Source: FAO; Nestl; WRAP; McKinsey

Some facts

- ~33% of edible parts of food produced for human consumption

gets lost or is wasted (globally)

- 22% of food bought by consumers (UK) is wasted ...

- ...of which 64% could have been avoided by better planning

- 30% of packed food is disposed without ever being touched

- #3 of the most important opportunities to save resources is food

waste*

The usage/functionalities of (plastics) packaging is already improving

efficiency in the supply chain

- Protecting goods less waste

- Preserving food less waste

- More efficient handling less transport

- Informing consumers less waste and better use

However, we think more effort should be put in using (plastics)

packaging in optimising food supply chains which will result in further

reduction of waste and of the carbon footprint

Therefore, we opt for introducing and developing new packagingtechnologies on a larger scale i.e. active and intelligent packaging**:

absorbers soaking up oxygen and prolonging shelf life, freshness

indicators helping consumers to assess food condition, modified

atmosphere packaging

* McKinsey, Resource revolution, 2011. Most important opportunities: #1 Building energy efficiency, # 2 Large scale farm yields, # 4 Municipal water leakage, # 5 Urban densification** Note: (Active) packaging has to meet the strict regulation (EC) No 1935/2004 of the European Parliament and of the Council on materials and articles intended to come into contact with food

Source: FAO, 2011

B C

0

50

100

150

200

250

300

350

Europe

N-America&

Oceania

Industrialised

Asia

Subsahara

Africa

N-,W-Africa,

CentralAsia

S-Asia,SE-Asia

Latin-America

Consumers

Producers to retailers


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30

After-use (I)

NLD in European top 10 though countries like Germany,

Belgium, and Sweden are doing better

Recycling and recovery of plastics packaging is going into the right directions however many more steps

have to be taken: better sorting methods, better plastics feedstock and new applications

Positive trends in recycling of plastics packaging

Still a lot to do: some difficulties when recycling plastics

In recent years higher awareness on waste recycling and collection

via policies, projects and initiatives i.e. Nedvang: supporting

municipalities in better collection/recycling, Avalex: recent

successful pilot project Rijck to stimulate consumers, and Sita:

investments in newest sorting systems

PET success due to purity of PET and deposit system

Higher feedstock prices making recycled plastics more competitive

R&D efforts to optimise recycling process: better cleaning, better

sorting i.e. NIR (Near Infrared), new applications for recycledplastics

Source: PlasticsEurope; Nedvang

* For countries which dont enforce a landfill ban on combustible waste** Note NLD data: only plastics packaging. Plastics packaging has a higher recycling rate than other plastics applications*** Based on Nedvang 2010 report: 48% is recycled and 52% is used for energy recovery. This 52% includes 17% other useful usage (including co-firing cement kilns and other types of incinerators).Furthermore we assume that 95% of the remaining 35% (52%-17%) is being incinerated in R1-incinerators. So we conclude: 33% (95% of 35%) R1-incineration, and 19% (17%+(35%-33%)) Other usefulusage

Recycling of multilayer plastics is more difficult than that of mono

plastics. In their turn, multilayer plastics have better barrier

functions and are thus better to preserve food

Biodegradable plastics dilute non-biodegradable plastics. Many

consumers dont know the difference between the two Recyclers want to use batches of used plastics which are pure and

secure (homogenous waste streams)

- Only post-industrial plastics can deliver this

- Post-consumer plastics are more diluted and therefore more

expensive to recycle to constant or higher quali ty plastics

Plastics waste: 24.7 mt

Disposal (landfill*):

42%

Recycling:

24%

Energy recovery:

34%

Plastics waste: 454 kt**

Recycling:

48%

Energy recovery:

52%

Europe

(2010)

TheN

etherlan

ds

(2010)

D

R1-incineration:

33%***

Other useful

usage:

19%***


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31

After-use (II)

* Though re-use of products is an important aspect in recycling (see Ladder of Lansink product re-use instead of material re-use) we wont discuss it in this report. Also the pros and cons of source-separation and post-separation are not discussed. Fore more information on these subjects please contact the Rabobank

Difficult to sort out different

kinds of plastics, and to sort out

and recycle heterogenous

plastics

Recyling can consume a lot of

energy

Plastics degenerate each time

they are recycled

Still virgin raw material needed

when producing plastics

We see several options. There is no best solution yet and they must be considered on their economic

impact, carbon footprint impact and technological constraints and the outcome will differ per case

Plastics-to-Fuel via

depolymerisation (pyrolysis)

Several pilots and projects

however non has been really

successful yet

Investments and scaling needed

to become competitive

Probably not all plastics are

possible and sorting issues as in

recycling might remain

Emissions do occur when

burning plastics for energy

recovery

In accordance to that

environmental impact depends

on technology of the incinerator

On the positive side we see that

plastics have high caloric value

Economic analysis: capex and opex

Sustainability/life-cycle analysis: carbon footprint of the entire production chain

D

Recycling

(excluding re-use of products*)Plastics-to-Fuel

Waste-to-Energy/

Energy-from-Waste

Technical analysis: technological (im)possibilities, BAT (Best Technology Available)


32/49


I. At a glance

II. Demand

III. Supply

IV. Sustainability

V. Strategy

VI. Appendices

In order to excel and become market leader producers should focus on one following

disciplines: Customer Initimacy, Product Leadership, or Operational excellence. On other

disciplines a minimum required performance level is still necessary

Packaging producers will position themselves depending on company size and type of product

which is produced

Subsequently various growth directions and growth methods can be chosen by plastics

packaging producers to enhance their growth strategy


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33

Strategic framework

Source: Rabobank

Strategic model consisting of three phases and an evaluation phase

Positioning

EvaluatingOrganising strategic

assets

Developing growth

strategy

Obtain position that differentiatesfrom competition

Organise assets and

align operations with

desired positioning

Evaluate success of

strategy via KPIs

Develop growth strategies, both on

direction and method

A

C D E

BF

Letter refers to explanationon next sheets( )


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34

Positioning (I) market leaders

Source: Treacy and Wiersema

Producers should focus on one of three disciplines in order to excel and become market leader. On other

disciplines a minimum required performance level is still necessary

A

Product leadershipBest product

Operational excellenceBest total cost

Customer intimacyBest total solution

Specialty products for in general

smaller markets. Focus on R&D and

innovative products and product

applications

Efficient production and taking

costs out of supply chain for

customers. Focus on Total Costs of

Ownership

Building strong and long term

relationships. Focus on deep

customer knowledge and

understanding

Marketleaders

Performance

level

Minimumrequired


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35

Positioning (II) likely positioningPackaging producers will position themselves depending on company size and type of products which

are produced

A

Typeofpr

oduct

Commodity

Specialty

Small LargeCompany size

Operational excellence:Best total cost

Product leadership:Best product

Customer intimacy:Best total solution


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36

Organising strategic assets

Strategic assets Product leadership

Best product

Operational excellence

Best total cost

Customer intimacy

Best total solution

Personnel Innovative staff

Product and concept driven

Loose-knit structures

Relative small staff

Process driven

Disciplined teamwork and centralisedorganisation

Service oriented staff

Client problem solving driven

Entrepreneurial client teams

Machinery and equipment Product specified machinery,

state-of-the-art

Built for shorter production runs

Standardised machinery, no frills

Built for longer production runs andhigh output

Flexible client specified

machinery

Built for client needs

Supply chain Facilitate short time-to-market Product delivery and basic servicecycle

Maximum flexibility in order tomeet customer demand

IT Technologies enablingcooperation and knowledge

management

Integrated low cost systems Customer databases linkinginternal and external information

Investments and

financial resources Focus on R&D and productdevelopment

Focus on improvement of currentworking methods

Focus on service concepts forthe customer

Strategic assets are that set of goods (tangible or intangible) which the producer has generated and

which are essential to differentiate from competition

B


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37

Developing growth strategies

Growth directions: where are we going to? Growth methods: how do we get there?

Source: Rabobank based on Ansoff product market matrix

Choose direction and methods for growth

Current product New product

Curren

tmarket

N

ew

market

Product development

Broaden product offering

Develop new products

Market development

International expansion

D E

Market penetration

Aggressive pricing

Better service

Mergers and acquisitions

Nearshoring

Focus

Organic growth

Diversification

Integration(vertical, horizontal)

C


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38

Developing growth strategies growth directions

Where are we going to?

Growth directions Explanation Example (anonymous companies)

Aggressive pricing Pricing below market prices. Most likely in commoditymarkets and viable for a producer when productioncosts are lowest in the field (lean and mean) andfinancial resources are sound (risk on price war)

A midsized and troubled Dutch packaging producer isusing the price instrument in order to win tenders andto ensure sales and efficient capacity utilisation

Better service Delivering a better service/price ratio thancompetitors. Essential growth direction when going for

customer intimacy

A producer of PE packaging has its own logisticalservice in order to deliver conform clients wish.

Furthermore the company can response immediately oncustomers demand as it holds stocks for them

Broaden product offering Playing on the trend of one-stop-shopping. Offering abroad range of packaging products and/or materials.Mostly used when going for customer intimacy

A small Dutch packaging producer wants to invest innew machinery. In this way the producer can offer anadditional line of products which it can easily sell to

current customers. Another producer is also wholesalerso it can offer a full range of products

Develop new products Essential growth direction when opting for productleadership. Product developing is often in cooperationwith raw material supplier, customer, packagingdesigner, or machine supplier. Ongoing development

is necessary to avoid the commodity trap

A packaging producer is developing together withprinting machine manufacturer - new printingtechnologies which are better for the environment.Another major producer focuses on high value-added

flexible barrier solutions and has R&D costs which aretwice as high as their competitors

International expansion Enter new markets. Strategy can be useful in order toserve internationally operating customers in multiplecountries and/or take advantage of fast growing

markets. Most likely for large producers

A European top 50 producer sold its PET packagingbusiness. The proceeds were used to expand itstobacco packaging activities in emerging markets like

China and Ukraine

Integration Diversification is regarded as being a high risk

strategy as normally a company has limitedknowledge of other products in other markets.Horizontal integration i.e. other packaging materials,

or vertical integration (backward, forward) might beless risky

A PET packaging producer has acquired a PET recycling

company. In this way the rPET feedstock is more securehowever the company is now also more exposed to thevolatility in the rPET and PET markets

D


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39

Developing growth strategies growth methods

How do we get there?

Growth methods Explanation Example (companies are made anonymous)

Mergers and acquisitions M&A is the quickest way to grow. Financial resourcesand management capabilities are required. Aboveaverage risk profile

A French top 50 producer has made a large acquisitionin 2010. It acquired three production sites in the UK. In2009 the largest European producer has enhanced itsposition by acquiring the flexible packaging productionbusiness of a major Australian mining company

Nearshoring Nearshoring to E-Europe is a more likely growth

method than offhoring to other emerging markets likeAsia. Nearshoring mostly done because of lowerproduction costs (labour costs) and sometimes donebecause of entering new markets. Most likely in more

commoditised markets in which low production costs

are the main competitive advantage

A Dutch midsized PE bags producers has a Joint

Venture with a small E-European producer. In this wayit benefits from lower labour costs for its commodityproducts which are sold to German customers

Focus Divest non-core business and reinvest proceeds incore business. Strategy can be useful for (too)diversified packaging producers

A large British packaging producer restructured andconsolidated its position. It sold part of its flexibleplastics and paper packaging activities which were seen

as non core business

Organic growth Relatively cheap growth strategy with relatively low

risk profile. Disadvantages: low speed, some growthdirections difficult to realise via organic growth, e.g.international expansion

A small Dutch producer lacks financial resources and

market position to acquire competitors. Via investmentsin machinery which makes production more efficient(lower production costs and faster production) it hopesto achieve above average growth

E


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40

Evaluating

Financial perspective

Innovation perspective

Customer perspective Internal business perspective

Vision and strategy

One way to evaluate a strategy is with the Business Balance Scorecard (illustrative example)

Benchmarking learned that working capitalwas not up to standard and could be opt imized

Shareholders indicated that they are notsatisfied with the returns on their equity andthe dividend pay-out. Cash from working capitalis needed to increase pay-out

Winning new customers while maintainingcurrent customers is key

Customer surveys learned that many customerswanted to be serviced in more countries.International expansion is necessary

KSFs

Market penetration

Customer satisfaction

Geographic presence

KPIs Market share

% new customers

TCO

% satisfied customers % long term customers

% sales in new markets

KSFs

Lower working capital

Shareholder return

KPIs

Inventory/sales

Working capital/sales Creditor days

ROE

Free cash flow

KSFs

Optimal production process

Efficient order processing(JIT)

KPIs

Utilisation rates % failure costs

Production costs/output

# days from order todelivery

% wrongly delivered

Efficient production (lean and mean) alsodepends on variety of products and theneed/possibility to made-to-stock or made-to-

order

Commodity producers with a limited productoffering can have more efficient productionand might be better able to deliver JIT

KSFs More product innovation

Better market exploitation

KPIs R&D/sales

Sales from newproducts

Customer opinion

Time-to-market

Market research learned that the productknowledge was insufficient in relation to thepositioning as Product leadership player

Several areas were further productdevelopment is possible i.e. packminimalisation, shelf-life prolongation, activeand intelligent concepts, improved funcionality,new printing technologies and bio plastics

F


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I. At a glance

II. Demand

III. Supply

IV. Strategy

V. Sustainability

VI. Appendices

Functionalities and requirements of plastics packaging

Position of plastics in petchem production chain

Glossary plastics

Contact details


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Functionalities and requirements (I)

Plastics packaging and other packaging materials

Packaging materials Barrier functionality Design freedom Printing ability Mechanical

vulnerability

Recyclability

Plastics

Metals

Paper

Carton board

Glass

Wood

Low score on criterion

High score on criterion


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Functionalities and requirements (II)

Plastics packaging functionalities per product

Product Distributing InformingProtecting and

preserving

Biological*

Biochem

ical

Chemic

al

Physical

Mechanical

Food

Costs of distributionLegislation andsales promotion Perishable goods

PharmaceuticalsSpeed less important,

reaching right consumer Safe useDrugs perishable and potentially

dangerous

Non food/non durables

Low importanceUse and

applicationLess importance apart from volatileand oxidation sentive substances

DurablesAmounts of space

taken upPackaging

plays minor roleProtect against mechanical

shocks vibration, electrical charge

Industrial/bulk goodsPackaging optimised

for transportDistribution information,

quality logos Larger units, less complex

* Biological: micro organisms i.e. molt, bacterials; Biochemicals: enzymes; Chemical: oxygen; Physical: i.e. UV, absorption o f moisture or aroma; Mechanical: breakage, contact with other objects

Low score on criterion, or not relevant

High score on criterion


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Position of plastics in petchem production chain

Source: Rabobank

Simplified flow diagram of the derivatives from petrochemical production. High volume plastics account

for 75% of the European plastics demand

natural gas

methane

ethane ethylene

LPG

oil naphtha

aromatics

C4

propylene polypropylene

acrylonitrile

acrylic acid

salt caustic soda

chlorine

VCM PVC

polyethylene

ethyl benzene

benzene

toluene

xylene

isobutane

butadiene

olefins hexene

butene

octene

LDPE

LLDPE

HDPE

styrene polystyrene

cyclohexane

nitrobenzene

cumene

nitrolene

paraxylene

isobutylene

ethylene oxide

MDI

phenol

acetone

TDI

ethylene glycol

caprolactam

adipic acid

nylon 6

nylon 6,6

phenolic resins

MMA

DMT

PTA

polybutadiene

methanol

MTBE

ABS

styreneacrylonitrile

polyacrylonitrile

PET

acetic acid

acylic fibres

Raw material

Intermediate

End product

Base chemical

High volumeplastics


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Glossary plastics (I)

Additives

Blends

Commodity plastics

Co-polymers

Elasticity

Elastomers

Frequently used words and terms

A wide range of substances that help in the processing of parts or in the physical and chemical properties of afinal product. The additives are added to basic resins by the resin supplier before being supplied to the

production plant. Examples of additives include UV stabilizers, antbacterial additives, flame retarders, dyes andpigments, photochromics, reinforcing fibers and plasticizers.

Blends can be used to tailor-make plastics with specific chracteristics that cannot be achieved by a singlepolymer. They are a physical blend of two or more polymers to form materials with a combination ofcharacteristics of both materials. Typical and common blends: ABS/PC, polyamide, PC/PP, and PVC/ABS. Blends

are an additional form of tailoring polymers to those created by co-polymerization, and di ffer drom co-polymersin that they are physical mixtures, not chemical.

A way of dividing plastics is by categorizing them as either engineering plastics or commodity plastics.Commodity plastics have relative low physical properties and are commonly used in the production of everydaylow-cost products. This classification group includes vinyls, polyolefins and styrenes.

The mixing of two or three compatible monomers in order to form a new chemical compound which can be usedto create a material that has a combination of the qualities of both monomers. This differs from a blend in thatthey are not physical but chemical mixtures.

The amount a material recovers to its orginal shape and size after it has been deformed. This is different to thetesting of plastic behavior which describes the way a material stretches and does not return to its orginal shape

or size.

Elastomers are rubber-like materials but with far more processing potential. They can be processed in the same

way as thermosetting materials. Elastomers may feel like rubbers but technically differ by their abi lity to returnto their orginal length once they have been deformed, rubber being able to return to its orginal shap morequickly and easily.


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Glossary plastics (II)

Engineering plastics

Fillers

Hardness

Impact resistance

Monomers

Plastics


There are a number of ways of classifying plastics: thermoplastic/thermoset, amorpheus/crystalline. Pared withcommodity plastics, engineering plastics are another way of categorizing. They are generally of a much higher

cost with superior physical, chemical, and thermal qualities and used in applications with demandingenvironments. They include acetals, acrylics, polyamides and polycarbonates.

Fibrous materials like glass and carbon which give enhanced mechanical properties like stiffness. Nonfibrousmaterials fillers such as hollow spheres, can be used to reduce the overall weight of a part.

The ability of a material to withstand indentation and scratching. The most common test are the Rockwell andDurometer tests which are graded in Shore hardness from Shore A soft to Shore D hard. Examples of hardplastics include melamine, urea and phenolic formaldehydes, and PET. Low-density polyethylene and elastomersare examples of soft plastics.

A materials ability to absorb energy. The final product is determined also by shape, thickness, and temperature.

The individual molecules which joined together form a polymer chain.

The true definition of plastic does not describe a specific material but how a material acts. In common language,

polymers are know as plastic due to the way they behave physically i.e. their shape can be easily changed.


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Glossary plastics (III)

Polymer

Polyolefins

Resins

Tensile strength

Thermoplastics

Thermoset plastics


A flexible, long chain of monomer molecules which displays different characteristics according to the chemistryof the monomers and the size and shape of the molecules.

This important group of polymers is made up of polyethylenes and polypropylene. Polyolefins are the largestproduced plastics in the world accounting for 45% of the plastics production. Together with vinyls and styrenes,polyolefins are classified as commodity plastics.

Generally used to describe the basic polymerization material e.g. polystyrene, ABS which can also be describedas polymers.

The maximum pulling strain that can be applied to a material before it fractures.

A material that can by the action of heat be softened, melted and reformed without any change in properties.This means that off-cuts and scrap from manufacturing processes can be reground and reused, and products

made from thermoplastics can more easily be recycled. The shape of thermoplastics molecules is lineair,

allowing them to move easily under heat and pressure.

Thermosetting plastics do not soften when heated and cannot be reused. Due to this characteristic they do not

have the same processability as thermoplastics. As opposed to thermoplastics, their molecules form a cross-lined network that limits movement within the chain.


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Contact details


Corporate Clients

Visiting address

Croeselaan 28

3521 CB Utrecht

Postal address

P.O. Box 17100

3500 HG Utrecht

The Netherlands

Arnold Hardonk (author)

Industry Knowledge Team (IKT)Industry Analyst IKT - Manufacturing

T. +31 30 712 27 06E. [email protected]

Wouter VersterMVO Grootbedrijf


Steffanie van der Maas

MKB SectormanagementSectormanager Industrie


Ronald de VriesIndustry Knowledge Team (IKT)

Industry Analyst IKT Energy and WasteT. +31 30 712 31 70E. [email protected]


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Disclaimer

This document is issued by Coperatieve Centrale Raiffeisen-Boerenleenbank B.A. incorporated in the Netherlands, trading as Rabobank International(RI). The information and opinions contained in this document have been compiled or arrived from sources believed to be rel iable, but norepresentation or warranty, express or implied, is made as to their accuracy, completeness or correctness. This document is for information purposesonly and is not, and should not be construed as, an offer or a commitment by RI or any of i ts affiliates to enter into a transaction, nor is it professional

advice. This information is general in nature only and does not take into account an individuals personal circumstances. All opinions expressed in thisdocument are subject to change without notice. Neither RI, nor other legal entities in the group to which it belongs, accept any liability whatsoever forany loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. This document may not bereproduced, distributed or published, in whole or in part, for any purpose, except with the prior written consent of RI. All copyrights, including those

within the meaning of the Dutch Copyright Act, are reserved. Dutch law shall apply. By accepting this document you agree to be bound by theforegoing restrictions.

Rabobank International, Croeselaan 28, 3521 CB Utrecht, The Netherlands, +31 30 2160000 2012 All Rights Reserved

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