2013 North American Plastics Industry Study Report

8/17/2019 2013 North American Plastics Industry Study Report

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North AmericanPlastics Industry Study

plastics.plantemoran.com

Copyright 2013 by Plante Moran

PREPARED BY THE PLANTE MORAN

PLASTICS INDUSTRY TEAM

2013 Survey Report

Higher Company Performance& Reshoring Among

Favorable Trends Impacting

North American Processors


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2013 NORTH AMERICAN PLASTICS INDUSTRY STUDY 2


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Table of Contents

INTRODUCTION 02

NEW THIS YEAR 04

SELECT 2013 SURVEY RESULTS 06

TRENDS 09

Trend 1 — Company Performance Trends 10

Trend 2 — A Resurgence in Mexico 12

Trend 3 — Reshoring Trends Create Opportunities

for North American Processors 14

Trend 4 — Attractive Company Valuations 16

PARTICIPATING IN OUR STUDY 19

ABOUT OUR PLASTICS PRACTICE 20

IN CLOSING 22

PARTIAL LIST OF INFORMATION PROVIDED

TO SURVEY PARTICIPANTS IN FULL REPORT 24

NoticePlante Moran has exercised professional care and diligence in preparing this report. However, because the data usedin this report comes from third-party sources and Plante Moran has not independently verified, validated, or audited

any such data, Plante Moran makes no representations or warranties with respect to the accuracy of the information

contained in this report. Plante Moran shall not be liable to any client or any other person or entity for any inaccuracy

or inauthenticity of the information contained in this report or for any errors or omissions in its content, regardless of

the cause of such inaccuracy, inauthenticity, error, or omission. Furthermore, in no event shall Plante Moran be liable

for consequential, incidental, or punitive damages to any person or entity in any manner relating to this report.


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We are pleased to present the 2013 North American Plastics Industry Summary Report.

Since 1995, Plante Moran has led this study, which serves to gather and analyze the most

empirical data collected in the plastics processing industry in North America.

HOW THE STUDY IS COORDINATED

Plastics processors complete a survey template that isavailable on our website.

Upon completion of the survey, we generate a customized report that is unique to each

processor who completes our survey template. The survey results are held in strict condence,

and participating in the study is at no cost to the processors. We collect data from plastics

processors on an ongoing basis throughout a given calendar year and release a summary report

which is available to the public.

TYPES OF DATA COLLECTED

Strategic, nancial, operational, sales & marketing,

and human resources data.

A potential total of 250 data points per participating company are collected. Please see the

last page of this report for a more detailed listing of data collected. The participants may have

participated from either the 2011 or the 2012 scal years, but should they have participated in

both years, only the latest data was included. As a result, data is reported as 2011/2012 data.

PARTICIPATION

84 companies representing 131 facilities totaling

$3 billion in sales.

Most are U.S. based; however, we have participants from Canada and Mexico as well.

Introduction


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PROCESSES OF PARTICIPATING COMPANIES

Injection molders, blow molders, extruders, and

thermoformers.

INDUSTRIES OF PROCESSORS INCLUDE

Automotive, electronics/electrical, medical, building

construction, packaging, consumer, and many others.

WHAT’S INCLUDED IN THE CUSTOMIZED BENCHMARKING REPORT?

Survey results, our commentary, and other discussion items.

An 80+ page detailed report is issued to each processor who participates in the study, which

communicates the results of the study and offers our related commentary on many of the results.The report is “board presentation” ready and is divided into a few key sections to provide

industry and benchmarking analytics and a report card that grades the participating company

against its peers. Testimonials from our clients are available at our website at:

www.plantemoran.com/industries/plastics.

WHAT’S INCLUDED IN THIS SUMMARY REPORT?

This summary report contains some of the highlights from our survey results recently collected.

It pales in comparison to the 80+ page report received by the processors participating in our study;

however, this report also provides our commentary on the general pulse of the plastics industry

today, key issues being faced, and information about our practice.


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New This Year

The plastics industry spoke, and we listened.

We held multiple focus groups this year with various plastics processors to enhance the

overall value of our report to survey participants.

NEW DATA INCLUDES:

Perhaps most importantly, we have added a value ranking assessment that reviews

the various components of value and assigns you a score for comparability and to

calculate your company’s relative value.

We appreciate the continued support of all those who participated, including the

continued assistance of the Manufacturers Association for Plastics Processors in

making this survey the benchmark of the plastics processing industry.

Press hours

statistics

Complexity

management

Value ranking

assessment

Planning process

utilized

+ Uniqueness of process + Product development

capabilities + Assessment of competitive

environment

Value proposition

analyticssuch as:

Sales force

structure data

Compensation

programs for

sales, marketing

activity

Management

team data


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Mean Data by Sales Quartile

2011/2012 Data $12.8 & $20M & < $29.8 >$29.8 Million Successful

Company1

COST OF SALES

Raw Materials 25.3% 33.9% 33.4% 36.7% 24.1%

Purchased Components 7.1% 5.7% 12.1% 10.2% 10.4%

Other Direct Costs 3.7% 2.4% 2.1% 5.1% 2.6%

Direct Labor 11.8% 10.7% 7.3% 8.3% 7.8%

Overhead Costs 25.7% 26.7% 25.7% 23.1% 24.3%

Total C ost of G oods Sold 73.6% 79.4% 80.6% 83.4% 69.2%

Gross Profit 26.4% 20.5% 19.3% 16.6% 30.7%

Selling, General, and Administrative Costs 18.3% 12.8% 11.3% 10.8% 13.7%

Operating Income 8.0% 7.8% 8.0% 5.8% 17.1%

SALES

Production Sales 96.4% 98.3% 98.1% 99.0% 98.5%

Tooling Sale s 7.2% 7.8% 5.8% 3.7% 3.9%

Less: Tooling COGS (4.0%) (6.9%) (4.0%) (3.0%) (2.7%)

Other Operating Revenue 0.4% 0.9% 0.2% 0.2% 0.3%

Total Sale s 100.0% 100.0% 100.0% 100.0% 100.0%

For comparison purposes, we aligned the AVERAGE of the statement of operations and the MEDIAN of select benchmarking

analytics versus the successful company performance.

SELECT BENCHMARKING ANALYTICS

Value Add per Labor Dollar 2 $2.06 $2.04 $2.58 $2.59 $3.02

Complexity - Probable Case - Injection3 54,720 384,825 209,908 1,514,700 3,042,600

Press Utilization (based on 24/7) -Injection Molding

36% 42% 35% 48% 40%

Two Year Sales Growth 15% 11% 13% 14% 15%

1. A Successful Company exceeds 10% return on sales (before interest, taxes, and owners compensation), return on assets of 15%, and salesgrowth of greater than 5%

2. Value Add per Labor Dollar = (Sales — Purchased Materials)/Total Labor

3. Complexity equals frequently used resins x (active molds + inserts) x presses


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Additional Quartile Benchmarking

Analytics Available to Those Who

Participate in Our Study:

» Number of Full-time Employees

» Value add per Press Hour

» Employee Turnover

» Number of Recorded WorkInjuries per Year

» Customer PPM

» Internal PPM

» Delivery %

» Inventory Turns

» Earnings Before Interest, Taxes,

Depreciation, Amortization

» Return on Net Capital Employed

» Return on Assets

» % of Sales with Gross Marginsless than 10%

» Two-year EBIT Growth

» Expected 3-year Growth

» Current Ratio

» Debt to Equity

» Days in Accounts Receivables


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Our data suggests that many plastics processors have recovered well since the dark days of the

great recession. There are many factors driving the recovery. For this report, we will focus on

four favorable trends that are playing a meaningful part in supporting our positive point of

view regarding the current conditions in the North American plastics industry.

Our Observations and Opinions

Company performance trends

A resurgence in Mexico

Reshoring trends creating opportunities for

North American processors

Attractive company valuations

1

2

3

4


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TRENDS»


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Company Performance Trends –

Higher Utilization, Productivity,and Prots

Press utilization and workforce

productivity are at or near

10-year highs. Prots are

also at historically high levels

(although we have seen a

drop in the past two years,

which we attribute to a sharp

increase in product launches).

In addition, the number of

“successful companies” has

doubled. The term “successful

company” for purposes of this

study refers to any company

that exceeds a 10% return

on sales (before interest and

taxes – adjusted for owner

compensation), return on

assets in excess of 15%, and

sales growth greater than 5%.

In most years, fewer than 8%

of the survey respondents meet

this criteria; however, this

year, 16% of the respondents

met this criteria.

The following graph shows year over year adjustments to productivity as measured by value-add per

employee, equipment utilization percentage, and gross prot margins for the last 10 years.

» T R

E N D 1 » T R E N D 2

» T R E N D 3

» T R E N D 4

»

Cum. productivity change

Cum. utilization change

Cum. GP change


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HIGHER UTILIZATION

Press utilization increased for

the third straight year. The

top quartile is in excess of

50% utilization for all pressesbased on a 24/7 basis. While

press utilization does not

correlate with protability

as many weak companies

routinely lowball quotes to

keep the presses running, the

reduction of available capacity

has brought pricing discipline

to the industry. Interestingly, it

appears the growth is strategic

with a modest reduction in

average complexity levels,

meaning some low volume

customers were priced out of

the company.

HIGHER PROFITS

The two largest cost drivers for

plastics processors are resin

and labor. Control these two

items and prots are almostcertain to come. Resin pricing

during the past 12-18 months

has had only modest increases

compared to recent years. In

addition, a higher percentage

of plastics processors are ableto pass resin cost increases

to customers. Regarding

labor, as suggested above, our

productivity data suggests that

plastics processors continue to

do more with less people (and

subsequently have been able to

manage their labor costs).

HIGHER PRODUCTIVITY

Labor productivity as

measured by value-add

(sales less material and

outside processing) dividedby total full-time equivalents

signicantly jumped in

2012. As we all learned,

during the depth of the

recession, companies were

forced to gure out how do

more with less. It appears

that many processors have

retained this skillset post-

recession. The industry as a

whole also is getting into a

rhythm operationally with the

continued sales growth.

During the recession,companies had tofigure out how to domore with less.

The largest cost drivers:resin and labor.

Press utilization

increased for thethird straight year.

22.9%

2002

0

2 00 3 2 00 4 20 05 20 06 2 00 7 20 08 2 00 9 20 10 2 01 1 2 0 12 2 00 2

0

2 0 03 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 09 2 0 10 2 0 11 2 0 12

8.4%

2002

0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

6.9%

Cum. GP changeCum. productivity change Cum. utilization change


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A Resurgence in Mexico

The following points highlight some of the facts that are contributing to Mexico’s recent

positive business trends:

» T R

E N D 1 » T R E N D 2

» T R E N D 3

» T R E N D 4

»

Automotive OEM productionfacilities (and growing)

Record levels Total imports , to tal export s,and automotive vehicle sales

$12.6 billionForeign direct investmentin Mexico in 2012

$5.00Average loadedhourly wage ratefor manufacturingoperators

56% of which was channeledtoward the manufacturing sector

Mexican residents to show signsof growth of the middle class

27 19Average age of Mexico’s citizenssupports continued investment inmanufacturing operations

Booming industries in Mexico that are driving higher demand for plastics4

AUTOMOTIVE

AEROSPACE APPLIANCE

ELECTRONICS

This indu stry ha s re cord ed growt hof >15% annually in the last 7 years

Mexico will become the 4th largestexporter and 8th largest producerby 2015

Mexico is the largest producer oftwo-door refrigerators in the world

Mexico is the largest exporter offlat screen TVs in the world


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While we have seen the U.S. nicely recover from the great recession, Mexico has experienced an

even stronger recovery, averaging approximately 4% GDP growth since 2010. We are seeing a

related increased level of expansion and migration of plastics companies into this country.

Tooling companies, crane companies, and other supporting businesses are slowly

but surely starting to expand or set up operations in support of this movement.Our advice to our clients is that whether or not you are or plan to be in Mexico,

your strategy needs to include how your organization will operate in lieu of the

business dynamics created by Mexico’s resurgence. If you need more long-term

motivation to have your plans include a Mexico strategy, consider that Goldman

Sachs is predicting Mexico to be the world’s fth largest economy by 2050.

GDP Growth (annual %)

Goldman Sachs ispredicting Mexico to bethe world’s 5th largesteconomy by 2050.

1.5%

3.4%

1.9%

2004

0

2005 2006 2007 2008 2009 2010 2011 2012 2013

-2%

-4%

-6%

6%

4%

2%

source:INEGI

USA

Mexico

Canada


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Reshoring Trends Create Opportunities

for North American Processors —Particularly in the U.S.

Reshoring trends continue to create new opportunities for U.S.-based processors.

Key drivers for reshoring initiatives are:

Supply chain and logistics riskssuch as the longer part ordering lead times,

transit issues, and customs complications

Lower energy costs in the U.S.

Continued socio-economicgrowth of developing nationsis creating domestic opportunities for molders

in these nations (and consuming existingproduction capacity)

» T R

E N D 1 » T R E N D 2

» T R E N D 3

» T R E N D 4

»


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We continue to see the gap reduced among costs to operate injection molding machines in the U.S.,

Mexico, and China. This is driven partly by the recent reduction of energy costs in the U.S. and rising

land values in certain markets including Mexico and China. The result of these conditions is that the

cost to operate machines in the U.S. is becoming more globally competitive, in particular, with large

machines. For the past several years, Plante Moran has prepared press rates for various geographic

regions based on inputs from local labor, utility, and real estate sources. Your rates may differ based

on your inputs specic to your operation.

Economists and energy experts expect the U.S. to continue to have a sizable advantage in its costs

for energy over the next several years. While we expect that plastics applications requiring relatively

high labor content will continue to reap the benets of being produced in nations

with lower labor costs than the U.S., we expect U.S.- based plastics processors

producing applications with relatively low labor content will continue to take on

more work that was formerly produced in foreign countries. For new programs,

we expect less work that has a nal destination of the U.S. to be sourced to

processors in foreign countries as compared to the recent past.

Injection Molding Machine Cost Rates per Hour (USD) − 2013

Press Size(tons)

Indiana MexicoEast

MexicoInterior

ChinaInterior

ChinaShanghai

200 $ 41.57 $45.91 $43.63 $29.50 $37.35

1000 $82.42 $97.42 $95.94 $76.14 $89.50

3000 $146.40 $178.66 $176.10 $139.59 $157.86

Experts expect theU.S. to have a sizableadvantage in regard toenergy costs over thenext several years.


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Investors eager to enter or further invest in the plastics space are creating exit opportunities

for owners, and they have a renewed appetite for businesses in plastics and packaging. P&M

Corporate Finance (Plante Moran’s investment banking afliate) reports that a total of 1,463

plastics and packaging deals were completed between 2009–2012. It further notes that increased

levels of M&A activity during Q2 and Q3 of 2013 indicate continued robust interest in this space,

which bodes well for the potential for similar levels of M&A activity to continue for the next

several quarters. Sellers, including retiring entrepreneurs without a second generation operator,

are realizing attractive current pricing multiples.

In addition, private equity

investors are reaching

inection points in their

investment cycles where

they desire to exit and

provide returns to their

sources of capital. Add-ons remain an important tool in value creation, with activity driven by

surplus capital. Interestingly, strategic buyers comprise the majority of buying activity, completing

approximately 50% more transactions than nancial buyers.

For more information on M&A activity, please visit pmcf.com.

Attractive Company Valuations Presenta Favorable Exit Window – Finally!

» T R

E N D 1 » T R E N D 2

» T R E N D 3

» T R E N D 4

»

Strategic Financial Add-On Financial Platform

218

57

72

347

235

68

80

383

199

61

80

340

266

60

67

393

0

50

100

150

200

250

300

400

350

20122009 2010 2011

N u m b e r

o f D e a l sStrategic buyers

comprise the

majority of buyingactivity, completingapproximately 50%more transactions thanfinancial buyers.


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The exit window may start looking attractive for those with strong current performance and a

bunch of bumps and bruises from the last recession.

HOWEVER...

But Let’s Be Honest...

We think highly of ourselves. When we ask companies to rate themselves on the uniqueness of

their manufacturing practices, product and design capability, and their competitive position within

the industry, the average is a 6 or 7 on a 10 point scale. Theoretically, the average should be a 5.

However, the inated value is probably due to ignorance of our competitors and the market versus

hubris of the respondent. Our customers may have greater perspective of our differences from our

competitors than we do – a scary proposition.

Are you ready for the beauty contest to attract top dollar?

How truly unique are your manufacturing skills?

Do you have acknowledged project and/or design skills

that are admired by your customers?

How competitive are you in the industry?


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Participating in Our Study

Participating in this study and benchmarking allow you to be brutally honest about

your competitive differentiation. Take the time to identify where you are in the

industry. Participate in trade organizations such as MAPP, SPI, and SPE, and attend

expositions and conferences.

If you are a plastics processing company and you have not alreadyparticipated in our study, we recommend that you do.

If you have already participated, please carefully review your

benchmarking report in detail to identify where you really stand.

Highlight the outlier benchmarks – are these benchmarks meaningful?

If so, should you identify the reasons for the metric – does it support

your value proposition?

Want to participate?Visit plastics.plantemoran.com

Already a participant?

Review your customizedbenchmarking report andidentify where you standin the industry.


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About Our Plastics Practice

Plante Moran’s plastics practice is widely recognized for having more empirical data in

the molding industry than any other professional services rm in

North America as a result of coordinating the annual North AmericanPlastics Industry Study since 1995. Our plastics practice is co-led

by Jeff Mengel and Ted Morgan. We are deeply entrenched in the

plastics industry and regularly participate as presenters at industry

organizations and events, such as the Plastics News Executive Forum,

the Society of Plastics Engineers, the Manufacturers Association for

Plastics Processors (MAPP), and the Society of Plastics Industry.

In addition, members of the Plante Moran plastics team have been featured authors in

industry publications such as Plastics News, Modern Plastics, Injection World magazine,

MoldMaking magazine, Plastics Technologies, and Automotive News.

We utilize the data we collect and our entrenchment in the plastics industry to support morethan 200 clients annually. Services include:

Our Data Our Industry Entrenchment+ = Unmatched Value Proposition

We are deeply entrenchedin the plastics industryand regularly participateas presenters in industryorganizations and events.

» Audit and Tax Compliance

» Strategy Consulting + Press rate studies

+ Market/Customer/Technologyattractiveness studies

+ Advisor to the board of directors ormanagement

+ Strategic planning

+ Customized benchmarking studies

» Due Diligence + Financial + Strategic + Operational + Technology

» Operational Effectiveness

» Technology+ Controls

+ Infrastructure+ Implementation

» International Advisory

» Cost Modeling and QuoteTemplates


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Audit and Tax

Compliance

Strategy

Consulting

Due Diligence Technolog y

Operational

Effectiveness

International

Advisory

Cost Modeling and

Quote Templates

Our Services.

– Press rate studies

– Market/Customer/Technologyattractiveness studies

– Advisor to the board ofdirectors or management

– Strategic planning

– Customized benchmarking studies

– Financial

– Strategic

– Operational

– Technolog y

– Controls

– Infrastructure

– Implementation


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JEFF MENGEL

Plante Moran Plastics Industry Team312.602.3515 (direct)248.223.8638 (direct fax)

[email protected]

TED MORGAN

Plante Moran Plastics Industry Team248.223.3575 (direct)248.327.8933 (direct fax)[email protected]

In Closing

Successful companies have a strong value proposition and often support their value

proposition with quoting discipline. Companies that misre often have high manufacturing

complexity (number of presses, molds, and resins to monitor and schedule) and misaligned

organizational structures. You can impact your enterprise value

today by taking a holistic approach to looking at your business,

surrounding yourself with talent that can keep up with today’s pace

of change, and becoming an adaptive and innovative enterprise.

We provide a number of materials on our website (http://plastics.

plantemoran.com) to help you assess your organization’s level of nancial stress and

develop your strategy. Embracing the challenges facing you with a plan is half the battle.

We are here to help you create and execute your plan should you need it.

Visit us on the web: plastics.plantemoran.com

We are here to helpyou create andexecute your plan.


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Partial List of Information Providedto Survey Participants in Full Report

BENCHMARKING DATA

» Strategy+ Management Team Dynamics

(NEW this year) + Value Proposition Analysis(NEW this year)

+ Planning Processes Utilized+ Processing Method(s) Used+ Total Production Sales Allocated

by Industry+ Supply Chain Role+ Sales Growth Expectations

(NEW this year)

» Sales and Marketing+ Amount of Prior Year’s Sales Lost

in Current Year+ Pricing and Payment Dynamics

including Pricing Adjustments and

Resin Purchasing Dynamics + Sales Force Size and Activities(NEW this year)- Experience level of sales team- W-2 vs. Manufacturers Reps ratios- Percentage of time spent on new

sales vs. account management+ Marketing Activities and Budgets

(NEW this year) + Quoting Statistics

+ Narrow Gross Margin Sales

+ Large Customer Analysis

» Operational Data+ On-time Delivery Performance+ Parts Rejected in Parts per Million+ Descriptive Press Statistics — Injection

Molding/Thermoforming/Blow Molding - Number of Presses

- Average Age of Presses- Cost Rate per Hour

PARTICIPANT REPORT CARD

» Size Analytics» Productivity Performance

» Organizational Design » Operational Metrics » Earnings Performance» Growth Trends » Balance Sheet Health » Value Rating (NEW this year)

A participant report card is your data

compared to our survey population.


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SNAPSHOTS

» Sales Size Snapshots+ Companies with less than $12M in sales

+ Companies with greater than $12M and

less than $20M in sales + Companies with greater than $20M insales and less than $29.8M in sales

+ Companies with greater than $29.8Min sales

» Processing Method Snapshots+ Injection Molding Process+ Extrusion Molding Process

» Industry Served Snapshots+ Transportation (Automotive) Industry+ Packaging Industry+ Appliance, Office, & Consumer Goods

Industry

+ Electronics Industry+ Medical Industry+ Industrial & Machinery+ Other Industries

» Supply Chain Role Snapshots+ Process-oriented Processor+ Value-Added Processor+ Proprietary Processor

A snapshot is quartile data of specific

portions of our data that can aid in various

analyses your company may perform.

We present approximately 16 differentsnapshots in each customized report.

- Percent Utilization- Average Time for Setup- Average Number of Setups per Week

+ Descriptive Press Statistics —Profile/Tube/Pipe Extrusion- Number of Lines- Average Age of Lines- Percent of Lines with Down-line

Automation- Percent of Lines

Co- or Tri-extruded- Percent of Lines with Crosshead

Extrusion- Percent Utilization- Average Time for Setup- Average Time of Setups per Week

+ Shift Activity

+ Tooling Attributes- Classification ofMold Type

- Source of New Obtained+ Resin Usage and Consumption

+ Complexity Calculation

» Human Resource Statistics+ Human Resource Deployment

by Department + Safety, Attendance & Other HRStatistics (including union vs.non-union, healthcare costs, andother fringe benefits)

+ Press Statistics per Employee» Financial Performance

+ Comparative Condensed Balance Sheet+ Comparative Operating Statement+ Comparative Component Costs

and Cash Flow


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About Our Firm

Plante Moran was founded in 1924. We are the13th largest accounting and management consulting rm

in the United States with more than 2,000 staff serving more than 10,000 commercial clients. We have

22 ofces in Illinois, Michigan, Ohio, China, India, and Mexico. For 15 consecutive years, we have been

on FORTUNE magazine’s list of the “100 Best Companies to Work For” largely due to our unique culture

and client service approach. A key differentiator for us compared to rms of our size (and larger than us)

is our “one-rm” rm operating structure. This allows us to work in an environment that encourages internal

collaboration among our staff which, in turn, enhances our ability to offer best-in-class and unied solutions

to our clients. The results are highly satised clients and a staff that likes working with one another.

Additional information, including our client satisfaction survey results, can be found at plantemoran.com.

Documents

2013 North American Plastics Industry Study Report