Critical TRENDS

Published: June 01, 2007, By Yolanda Simonsis, Associate Publisher/Editor

Last year's April issue featured, for the first time, PFFC's special report on the critical trends affecting the converting industry. This year, we again bring you the results of our survey with thanks to the sponsors, listed on this page, that helped make this effort possible.

The project was very comprehensive in the sense that, to our knowledge, no other organization had ever attempted to query converters across the breadth of the industry to determine and identify its health and critical trends. This is probably because associations — the traditional medium for these types of projects — primarily tend to serve specific niches and provide only snapshots of the industries they serve. However, the staff of PFFC felt the magazine was in a unique position to solicit answers to the same set of questions posed across all segments to determine collectively how converters are thriving and surviving.

What you see in the following pages are cumulative answers to the questions we posed converters in these segments: flexible packaging (23% of respondents); paperboard packaging (14%); tapes, labels, and tags (25%); unprinted rolls and sheets (25%); and other sectors (13%). The largest segment of respondents (42%) work for companies employing 200 or more people. The remaining reponses were split evenly among smaller companies: 1-19 employees (14%); 20-49 (15%); 50-99 (16%); 100-199 (13%).

In the future, we hope the critical trends survey will produce increasingly projectable results that readers can use as a yardstick to compare themselves against others in similar or competing businesses.

This was not an easy task. We hope you will value the effort put forth, especially by Jan Rabinowitz of Penton Media Inc. Research, in distributing and collecting the information.

It's also important to note that over the course of the coming year, each edition of E-Clips (PFFC's electronic newsletter) will include break-out answers provided by respondents in each of the represented industries (i.e., flexible packaging; paperboard packaging; tapes, labels, and tags; and unprinted rolls and sheets) to which the survey was sent. To become a subscriber to E-Clips and receive this important full report, go to http://subscribe.pffc-online.com/subscribe.cfm?tc=NNWEB.

Primary Business

Q. What is the primary type of business conducted at your location?

Each primary business type is well represented in the sample.

About one-fourth of the respondents each work for an unprinted rolls and sheets; tapes, labels, and tags; or flexible packaging company.

The largest segment of respondents work for companies employing 200 or more people.

Number of Employees

Q. How many employees does your company have in total?

Volume of orders, inquiry activity, and order size all increased for a majority of respondents in 2006.

Past-due receivables remained the same for the majority of respondents, and another 21% experienced a decrease.

Nearly all of the respondents (91%) experienced an increase in the volume of orders in 2006.

Business Activities — 2006 compared to 2005

Q. Please select how 2006 compared to 2005 within your company for each of the following business activities.

The majority of respondents expect volume of orders and inquiry acivity to increase again this year.

The largest segment of respondents (46%) also expects order size to increase.

Most respondents (59%) expect past-due receivables to remain about the same size as last year.

Change in Business Activities

Q. What do you expect to happen in 2007 compared to 2006?

Revenue increased from 2005 to 2006.

The magnitude of the revenue increase was smaller this year than last, however.

2006 Sales Revenue Percent Increase

Q. By what percent did 2006 revenue increase over 2005?

Raw material costs continued to increase.

Slightly fewer respondents reported an increase in 2007, however (87% vs. 94%). The percentage increase in the costs also went down from the 2006 study. This year's repondents were more likely to report an increase of 3% to 7% compared to more than 8% last year.

Change in Materials Costs

Q. Please indicate the approximate overall percentage increase of your raw materials costs.

Respondents most often reported that their customers' revenue and profitability increased in 2006.

While a majority of respondents indicated that their customers' revenue increased in 2006 over 2005 (58%), only a plurality reported an increase in profitability (41%).

Profitability among customers' businesses was twice as likely as revenue to show a decrease versus prior year, according to respondents.

Customers' Business Change

Q. How did your customers' business change on average in 2006 compared to 2005?

Overall plant capacity utilization was an estimated mean 77% in 2006.

The largest segment of respondents (41%) reported an increase in the business backlog in the second half of the year.

Plant Capacity Utilization

Q. Please estimate your overall 2006 plant capacity utilization.

Fewer respondents indicated a negative impact from imports than last year.

This year, four in ten respondents indicated a negative impact from imports, compared to nearly six in ten last year.

42% of respondents reporting a negative impact say that 2006 sales revenue was down by 5% to 10%. More than eight in ten of these respondents (82%) indicated that these products were imported from China. Mexico was a distant second, chosen by 30% of respondents.

Impact of Imported Converted Products on Revenue

Q. Have imported converted products from countries outside of the US negatively impacted your business in terms of 2006 sales revenue compared to 2005?

Four in ten respondents also reported a negative impact on profit margin.

One-third of these respondents (30%) reported that profit margin was down 10% or less as a result of imported converted products.

Impact of Imported Converted Products on Profit Margin

Q. Have imported converted products from countries outside of the US negatively impacted your business in terms of 2006 profit margin compared to 2005? If yes, by what percent?

Selling prices increased for a majority of respondents.

While the number of respondents reporting an increase in selling prices was similar to that found in the 2006 study, more respondents reported increased pre-tax profitability (47% vs. 38%).

Change in Financial Indicators

Q. How did your financial indicators below compare to those of 2005?

Expanding the product line into new markets remains the best investment of company resources, according to respondents

Investment in capital equipment (25%) also is considered wise.

Areas with the Greatest Impact on Revenue and Net Profit

Q. In which one of the following areas would a company investment have the greatest impact on driving your revenue and net profit in the coming year(s)?

Three-fourths of respondents plan to add or expand products/services.

This compares to two-thirds of the 2006 respondents who expected to add or expand products/services.

Additional or Expanded Capabilities

Q. What new or expanded products/services do you plan to offer your customers in 2007?

The same number of respondents as in 2006 reports no partnerships with foreign companies.

About 5% of those reporting planned partnerships in last year's study apparently brought those plans to fruition.

Partnering with Companies Outside the US

Q. What are your company's interests in developing a partnership with a converter company based outside the US?

This e-mail survey was distributed to selected subscribers between February 9 and February 27, 2007, resulting in 261 responses. Complete survey results are available upon request.