Especially with the economy in such a tenuous condition, polymer industry leaders are interested in market trends. Everyone wants a crystal ball to predict where the industry is going, so the webinar sponsored by PolymerOhio in mid-March 2009 provided some useful insight.

The event was based on a special survey that updates the 2008 study of the plastic industry by the firm of Plante & Moran, PLLC, an independent certified public accounting company and business advisory firm based in Southfield, MI.

In 2008, more than 172 companies representing 244 facilities in a broad array of processes throughout North America, including, the United States, Canada, and Mexico shared data through 2007.  From this survey, 40 companies were selected to update the 2008 study with the recent results through the end of 2008 as well as their plans for 2009.   The special survey focused on 20 low leveraged companies (under 1 to 1 total debt to equity ratio) and 20 high leveraged companies (over 4 to 1 total debt to equity ratio) and enjoyed a response rate in excess of 70%.

Some of the prior highlights of the Plante & Moran North American Plastics Industry Study (2008) include the following:
• New sales, especially among successful molders, possess a higher value proposition than current sales, so margins are improving, even though some negotiated price reductions are occurring.
• Successful companies have managed to retain at least a slight superiority in most key performance indicators, resulting in a favorable bottom line.
• Highly successful companies are not large. The technical niche they exploit may be better suited to a narrower market. But rest assured, they are not thriving on volume.
• Highly successful companies have more working capital availability — more cushion to address capital investments and daily operations.
• Overhead is still the dominant difference between successful and struggling companies.
• Highly successful companies conduct 50 percent more setups than the typical molder (but not necessarily faster setups, perhaps due to the technical aspects of the part).
• Highly successful companies may invest heavily in new equipment, but net equipment is still a smaller percentage of their total assets. More of the successful companies’ assets are in receivables and inventory.
• Utilization continues not to correlate with success. The highly successful companies have average utilization, but also above-average manufacturing complexity. It is necessary to have available capacity to manage complexity and the vagaries of the customer demand.
• Growth does not correlate with profits, but highly successful companies have decent growth. Unfortunately, some companies are not strategic regarding the type of growth they desire or how they will accommodate the growth — and they suffer as a result. In general, high-growth compa¬nies incur higher debt and interest charges. Highly successful companies fund their growth internally (high-growth companies have higher overhead to digest the growth).
• Highly successful companies use predominately intermediate and engineered resins, but also purchase a higher percentage of resins under the customers’ POs (meaning they are not rewarded/punished for commodity risk).
• There will be continued price pressures, but complex, fast, and large products are slow to be outsourced to low-cost companies.
• Materials, such as resins, were increasing in price through most of 2007/2008, yet manufacturers are not always able to pass along the costs to the next-stage consumer (unfortunately, subsequent price reductions were more than off-set by sales volume reductions).
• Over 30% of the survey had greater than 4 to 1 debt to equity, making it difficult to manage the significant downturn in the economy.
According to Plante & Moran, the current credit crunch is exponentially impacting the plastics industry.  Every polymer company has to deal with the impact and the industry look differently as it comes out of the recession. The webinar shared the initial findings of Plante & Moran’s most recent industry study of highly leveraged and low leveraged plastics processors.  They showed how plastics industry companies are coping with current economic conditions by reducing production volumes, reducing costs, restructuring their debt, and changing their investment spending strategies. 
The updated survey had a few surprises.  The majority of the highly leveraged companies had 90% shoot and ship sales, where as the majority of the lowly leveraged companies had only 5% shoot and ship sales.  Furthermore, the majority of the shoot and ship sales had 17% average reduction from 2007 and engineered component sales had sales gains of 2%. Most companies suffered sales reductions in 2008 and are planning on further sales reductions.  Lowly leveraged companies are still considering some asset acquisitions and are willing to invest in sales and engineering talent.  On the other hand, highly leveraged companies are not acquiring any equipment and tend to seek sales representatives to explore new sales.  Most importantly, most highly leveraged companies are or expect to be in covenant default.

Banks are more difficult to negotiate covenant waivers and may not have the patience to support a weak company.  Plante & Moran extrapolated the survey responses to the industry population and estimates that 15% of the industry will not be able to survive the depth and speed of the economic downturn.  Companies with bad balance sheets are particularly at risk. The impact is 240,000 tools looking for new homes.  In addition, another 120,000 tools may be repackaged from surviving molders to address the customer's desire to manage the supply base.   Bottom line is there will be opportunities for growth if you are looking to transfer tools and can appeal to the customers risk concerns.

Plante & Moran’s annual North American Plastics Study is widely regarded as the most in-depth benchmarking survey available linking profitability and performance in the plastics industry. The study measures key performance indicators in areas such as strategy and marketing, financial performance, human resources, and operations. For hundreds of contributing participants, the study provides an objective view of what drives success in the plastics industry.

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Plante & Moran is the 12th largest certified public accounting and business advisory firm in the United States, providing clients with financial, human capital, operations, strategy, technology, and family wealth management services. Plante & Moran has a staff of more than 1,600 professionals in 18 offices throughout Michigan, Ohio, and Illinois, as well as in Monterrey, Mexico and Shanghai, China. Plante & Moran has been recognized by a number of organizations, including FORTUNE magazine, as one of the “100 Best Companies to Work For.”

Plante & Moran serves more than 200 plastics processors and each year leads the North American Plastics Industry Study, the most in-depth benchmarking study available linking profitability and performance in the industry.

PolymerOhio, Inc. is a polymer industry-specific Ohio Edison Technology Center, which is funded by the Ohio Department of Development.  PolymerOhio focuses on enhancing the global competitiveness of the polymer industry, including companies from the plastics, rubber, bioproducts, and advanced materials segments. For more information, polymerohio.org