Bda presentation. specialty papers 2012.2

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  • 1. Learning to Profit in the New Normal Prepared for2012 Specialty Paper ConferenceFrank Perkowski Business Development Advisory November 9, 2012

2. Why Do We Need To Talk About This?Fundamental Shifts Have / Are Taking Place. New Industry Structures and Dynamics Changing Technologies and Customer Solutions Evolving Markets and Paper Applications New Competitive Sets and Bases for Competition Changing Customer Expectations and Needs New Opportunities for Growth and Failure! Markets Sorting Out Winners and Losers2 3. Presentation Outline 1.What has changed / stayed thesame? 2.How should specialty papercompanies respond? 3.Path Forward 3 4. What HasChanged orStayed theSame? 4 5. The World Has Changed Overnight!Macro DevelopmentsIndustry DevelopmentsGlobalization / Localization Electronic Media Growth Asia / New Economy Growth Graphic Paper DeclinesConvenience Technologies Industry Shift to Asia / LAConnected WorldDeclining US Paper DemandSocial NetworkingRecession Impact on UsageSmart Technologies Nano Technology DevelopmentIncreased Transparency Paper / Plastic InteractionsSustainability Focus Secure Packaging SolutionsNew Energy Solutions Sustainable Materials FocusAging PopulationsThird Party CertificationsFemale Empowerment Renewable Energy SourcesHealth & Well BeingIndustry ConsolidationTerrorism / Security Company RepositioningsGlobal Economic Collapse Import / Export GrowthUS Economic DeclineNew Wax / Plastic Alternatives5 6. ) 1 = 7 0 2 ( x e n I t c u d o r P S U i 100 110 120130 6070 80902891 -0 12891 -0 93891 -0 54891 -0 1Source: US4891 -0 9Census Data5891 -0 56891 -0 16891 -0 97891 -0 5891 -0 1891 -0 9891 -0 5 All Publishing Papers Total Paper Production Other converted paper091 -0 1091 -0 991 -0 5291 -0 1291 -0 9391 -0 5 Paper bag & coated / treated paper491 -0 1491 -0 9591 -0 5691 -0 1691 -0 9791 -0 5891 -0 16891 -0 991 -0 502 -0 102 -0 9102 -0 502 -0 102 -0 9302 -0 5402 -0 1402 -0 9502 -0 5602 -0 1US Paper Demand Has Shifted602 -0 9702 -0 5802 -0 1Historic US Paper Production Trends by Selected Grade (1982-2012)802 -0 9902 -0 5102 -0 1102 -0 9New Normal102 -0 5102 -0 1 7. Pricing Trends Vary By Grade / MarketHistoric US Nominal Price Trends for Major Paper / Converting Grades250Packaging & Ind Converting PaperPaperboardOverall Paper225Printing & Writing PapersCoated / Laminated PapersAll Commodities200175mNUodnP02891e=aSxc150r)(Ili125 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4 -7 -1 -4-1 0-1 0-1 0-1 0-1 0-1 0-1 0-1 0-1 0-1 0 7 0 2 0 2 0 2 3 0 2 3 0 2 3 0 2 4 0 2 4 0 2 4 0 2 5 0 2 5 0 2 5 0 2 6 0 2 6 0 2 6 0 2 7 0 2 7 0 2 7 0 2 8 0 2 8 0 2 8 0 2 9 0 2 9 0 2 9 0 2 1 0 2 1 0 2 1 0 2 1 0 2 1 0 2 1 0 2 1 0 2 1 0 202302402502602702802902102102 8. Paper Application Dynamics ChangingSpecialty Paper Growth Rates by End Use Application3.0%2006-2010 AAPC2011-2015 AAPC2.0%1.0%0.0%-1.0%-2.0%mwGDARobhdnPY5eagyvsrti-3.0%8 9. Winners and Losers in Specialty PaperEstimated Growth Rate Trends by Major Specialty Paper Grade 8.0%Sorted Based on Five Year Projected Rate 2006-2010 AAPC 6.0% 2011-2015 AAPC 4.0% 2.0% 0.0% -2.0%Specialty Paper Grades In Study -4.0% Art papersKraft specialties Photographic base Asphalt sat baseLabel facestockPremium cutsize CarbonlessLabel release base Premium writing -6.0% Coating baseLaminating baseSecurity papers Dcor paper Latex sat base Text & cover Direct thermal base Lightweight pkgTissue pkg / wraps -8.0% Electrical papers Lightweight printing Wallpaper base Filter base stock Medical / Hygienic Waxing base Industrial sat base OGR treatedWide format inkjet-10.0% 9 10. Changing Product Requirements Electronic substitution threatsaccelerating More customer SKUs and increasedtargeting capabilities More integrated products / solutions Higher performing materials available Need for more sustainable materials andprocesses E-commerce and electronics affectingevery aspect of product and delivery Increased cost focus due to economy 10 11. Competitive Dynamics Have Shifted Fewer but more focused competitors inmany segments More disciplined pricing environments Lower capital investment but moreflexible / capable assets Less import threats in some marketswhile export opportunities expand Widening gap between commodity andspecialty solutions Better management / optimization focus11 12. Customers Have Different Needs More sophisticated supplier selection /product qualification process Stronger emphasis on preferredsuppliers and relationships Consolidations have improvedoperations / focus Sustainability / environmental focusresulting in new solutions Increased global orientation More knowledgeable / informed12 13. How ShouldSpecialty PaperCompanies Respond? 13 14. Re - Evaluate Your BusinessDevelop and implement successful business models byemploying time - tested management practices that chartyour future development activities .Understand how your industry / markets are changingPrune and develop new product linesDevelop both products and marketsSpur increased growth and profits through new productsEstablish / develop your competitive advantagesDifferentiate away from competitionDetermine where the money is made in your segmentInvest strategically and selectivelyConsider all paths to growth.. 14 15. Understand How Your Market isChanging or both being threatened?Are your assets, activities,While most specialty paper markets are changing, only a few cases exist where bothassets and activities are seriously threatened. In most cases, markets have evolved andan incremental change in strategic approach is required. In other cases (such ascarbonless, white paper, printing papers, and text & cover), a more radical response isnecessary.15 16. Prune and Re-Develop Product Lines Product lines should be continually reviewed and refined to maximize profitability. Specialty paper companies need to understand how their products are strategically positioned externally in order to maximize profits Most specialty paper companies are too focused on internal capabilities and cost. 16 17. Develop Both Products and Markets Sub-performing specialtyAnsoff Matrixpaper companies must expand into new markets and /or products to survive in the future. The best approach is to transition the business into new markets OR new products sequentially Doing both simultaneously (diversification) is risky and often fails Even more risky is failing to develop new markets and products on an ongoing basis.17 18. New Products Spur Growth & Profits Most specialty paper markets and products today operate in the mature or declining stage This is evidenced by low growth rates and a declining base of competitors and customers Companies in these businesses can only grow by developing new products, markets, or broader / better solutions (innovation). 18 19. Develop a Real Competitive Advantage Competitive advantages can be based on cost or product (differentiation) related dimensions Unlike commodity papers, successful specialty paper products typically offer product related advantages A narrow focus is most appropriate for a small specialty paper company with limited resources. But a broader focus creates economies of scale which potentially results in higher profit margins.19 20. Differentiate Away From the Competition Most specialty paper companies employ Red Ocean strategies Blue Ocean strategies reduce the significance of competition and increase margins Declining markets are often the result of someone elses Blue Ocean success Successful Blue Ocean initiatives have their basis in a superior*Excerpted from W. Chan Kim and Renee Mauborgne book understanding of customer needs coupled with better solutions 20 21. Determine Where the Money is Made Auto Industry Profit Pool Analysis (Bain - 1990s) 3516 Profit Pool Assessment Revenue Share 14 30 Operating Margin 12High revenues and shares do not-%ple 25translate into high profit margins!.. -%m 10xa 20 15 E 8Analysis of other industries such as autos, 6airlines, and personal computers show that M O n p e a g r t i 10supporting products and services tend to carryRodhuneayvSsrtfI 4 5 2higher margins than the core business. 0 0Used Car Auto ManufAuto Service & AftermarketAuto Auto Rental New CarWarranty Gasoline DealersInsuranceRepairPartsFinancing DealersSpecialty paper companies should consider 45PC Industry Profit Pool Analysis (Bain - 1998) 40related and supporting segments to grow their 40Revenue Share sales and profits: 35Operating Margin 35forward integrate into converting ple 30-%develop supporting / related services m 30 -% xa 25develop supporting / related productsE 25 20 20 create bundled / integrated solutions 15offer competing processes or solutions to M O n p e a g r t 15 ibetter meet customer needs.Rhudn4eavySsrtI 10 10550 Personal Other Components PeriferalsServices Software Micro Compressors 021Computers 22. Invest Strategically & Selectively Another required analysis considers the attractiveness of markets and the companys business position in each. Business position and attractiveness can be defined in different ways to yield different results. Depending on the analytical result, investments should then be prioritized to ensure the highest returns and long term viability. 22 23. Consider All Paths to GrowthUnique tangible or intangible McKinsey Growth Pyramidcapabilities should providethe foundation for a growthinitiative .But organic investment maynot be the best growth optionfor many specialty papercompaniesIn mature or decliningmarkets, other riskierapproaches may be moresuccessfulSpecial alliances /relationships can provide thebest growth options butthese are rarely pursued inour industry. 23 24. Specialty Paper Companies The Path to Success24 25. New Broad-Based Approaches AreNeededChanging Markets Smarter Solutions using Globalization /High PerformanceLocalization Materials and Asia / New Economies Information TechnologiesConvenience Technologies