FLEXIBLE PACKAGING ASSOCIATION 2003 STATE OF THE INDUSTRY REPORT

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Melina Davis
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1 FLEXIBLE PACKAGING ASSOCIATION 2003 STATE OF THE INDUSTRY REPORT

2 2002 FLEXIBLE PACKAGING Growth Comparison Annual Increase 2002 vs 2001 Compound Growth Rate 1992 to 2002 US Economy/GDP 2.4 % 3.2 % Flexible Packaging 2.7% 3.9 % Source: Dept of Commerce-Bureau of Economic Analysis and FPA 2002 State of the Industry Survey

3 2002 FLEXIBLE PACKAGING Rev/Vol Change Comparison 2001 vs 2000 Change 2002 vs 2001 Change Year on Year Volume Change Year on Year Revenue Change 2.5 % -1.3 % 1.1% 2.7 %

4 Profit Before Tax as a Percent of Net Sales % All US Manufacturing 8% 6% Flexible Packaging Mfgrs 4% 2% 0% Source: US Census Bureau & Flexible Packaging Association

5 TOTAL US PACKAGING MARKET % Breakdown by Segment Misc. Plastics 8% Plastic Bottles 7% Glass 4% Others 15% Metal Cans 11% Flexible 17% Paperboard 12% Corrugated 26% Total $ 120 Billion Source: Census Bureau 2001 ASM, Flexible Packaging Association

6 PACKAGING SEGMENTS GROWTH COMPARISON Compound Annual Growth Rate - %/yr 6% 4% 2% 0% -2% 3.5% 2.6% 1.5% 0.2% Flexible Corrugated Paperboard Glass Metal Cans -0.8% Source: Paperboard Packaging Council, Fiber Box Assn, GAMIS, Can Mfrs Institute, FPA

7 FLEXIBLE PACKAGING STATE OF THE INDUSTRY 2003 FPA State of the Industry Survey 63 Suppliers and Converters 37 Converters 26 Suppliers Totals in excess of $ 10 Billion in US Flexible Packaging Revenue 58 % of Flexible Packaging Industry 185 Plants Census Bureau

8 SURVEY PARTICIPATION SUMMARY CATEGORY NUMBER 29 PERCENT 46 % FAX % MAIL 9 14 % HAND DELIVERED TOTAL % 100 %

9 CONVERTER SURVEY PARTICIPANTS Alcan Packaging Glenroy, Inc Phoenix Packaging Alcoa Flexible Packaging Amcor Stevens Flexible Packaging American Packaging Corporation Amgraph Packaging, Inc Beacon Converters, Inc. Bemis Flexible Packaging Bryce Corporation Hueck Foils L.L.C. InterFlex Group, Inc. International Converter, Inc. International Dispensing Corporation International Paper- Specialty Packaging Div LPS Industries Mega Plastics Plassein International Pliant Corporation Printpack, Inc. Progressive Packaging Ltd. /Gen-Pack Rexam Medical Packaging RollPrint Packaging Products, Inc. RJR Packaging Cadillac Products Packaging Company CargoTech Mohawk Northern Plastics Inc. North State Flexibles Sealed Air Corporation- Cryovac Div Sonoco Flexible Packaging CLP Packaging Solutions, Inc. Columbus Cello-Poly Exopack, LLC Paragon Films Pechiney Plastics Packaging, Inc. Smurfit-Stone Stone Container Corp. TOLAS HealthCare Packaging

10 SUPPLIER SURVEY PARTICIPANTS Battenfeld Gloucester Engineering Co, Inc. Biofilm S.A. Bobst Group USA BST Promark EVAL Company of America Exxon Mobil Chemical Co. Films Business Exxon Mobil Chemical Co. - Resin Div. Flint Ink National Starch and Chemical Co. NEX Nova Chemicals, Inc. Radius Solutions CMD Corporation H.B. Fuller Company Rohm and Haas Color Converting Industries Dow Chemical DuPont Company Energy Sciences, Inc. Huntsman Corporation Johnson Polymer ISO Poly Films, Inc. Mica Corporation SKC America, Inc Valmet Converting Inc. Windmoeller & Hoelscher Corporation

11 Growth in the Flexible Packaging Industry $ Billions $22 $18 $14 Compound Growth Rate 3.9%/yr $18.5 $19.0 $19.7 $19.5 $17.3 $16.2 $16.3 $13.7 $13.9 $14.5 $20.0 $ * *FPA Estimate Source: Flexible Packaging Association

12 Growth in the Flexible Packaging Industry % Increase vs prior year 12% 11.6% 11.6% 7% 6.3% 6.9% 2% 1.5% 4.1% 0.4% 2.9% 3.7% 2.7% * -3% -1.3% *FPA Estimate; Source: Flexible Packaging Association

13 Dollar Value of Flexible Packaging Imports and Exports, (Millions of Dollars) $1,600 Imports $1,400 $1,200 $1,000 Exports $800 $600 $ Sources: Census Bureau, Foreign Trade Division

14 Total Number of Domestic Converter Mergers and Acquisitions, Source: Flexible Packaging Association

15 CONVERTERS PRINTING BY CATEGORY % $ Value of Shipments for Respondents Unprinted 28% Gravure 19% Offset & Other 1% Flexo 52% Source: Flexible Packaging Association 2002 State of the Industry Survey

16 CONVERTERS PRINTING COMPARISON % $ Value of Shipments for Respondents CATEGORY FLEXO 2002 SOI 46 % 2003 SOI 51 % GRAVURE 22 % 19 % OFFSET & OTHER UNPRINTED 2 % 30 % 2 % 28 % TOTAL 100 % 100 % Source: FPA 2001 & 2002 State of the Industry Surveys

17 FLEXIBLE PACKAGING MATERIAL PURCHASES 2002 $ Value est. $ 10.7 Billion Paper 20% Inks 7% Resins 30% Adhesives 4% Other 6% Foil 5% Film 28%

18 Flexible Packaging Industry By NAICS Shipment Value in $ Billions Unsupported Plastics Packaging Film & Sheet Converted Unmounted Aluminum Foil Coated & Laminated Packaging Paper Uncoated Paper & Multiwall Bags Laminated Aluminum Foil for Flexible Packaging Total $ 20 Billion Plastic Bags Plastics, Foil & Coated Paper Bags Source: US Census Bureau

19 Major Flexible Packaging Products Sold By FPA Survey Participants 90% 80% % Converters Involved 70% 60% 50% 40% 30% 20% 10% 0% Rollstock Bags Lay Flat Standup Lidding Labels Retort Pouches Shrink Sleeves Stretch Films Wrappers Pouches Pouches

20 FLEXIBLE PACKAGING MARKETS CATEGORY Rollstock Bags Lay Flat Pouches Standup Pouches Shrink Sleeves Lidding Labels & Seals Stretch Films Wrappers Other PARTICIPATION 87 % 57 % 43 % 33 % 10 % 40 % 20% 17% 13 % 33 % $ VALUE 65 % 13 % 2 % 1 % 1 % 1 % 2 % 5 % 2 % 8 %

21 Converters Capital Spending Plans for 2003 (Percent of Converter Respondents) Acquisition 10% Replace/Upgrade 90% Building & Equipment 73% Added Capacity 60% 0% 20% 40% 60% 80% 100%

22 Converters Capital Spending Plans Comparison of 2003 & 2002 (Percent of Converter Respondents) Acquisition 11% 10% Replace/Upgrade 69% 90% Building & Equipment Added Capacity 54% 63% 60% 73% 0% 20% 40% 60% 80% 100%

23 Suppliers Capital Spending Plans for 2003 (Percent of Supplier Respondents) Acquisition 17% Customer Equipment 11% Replace/Upgrade 67% Building & Equipment 39% Added Capacity 33% 0% 20% 40% 60% 80%

24 Suppliers Capital Spending Plans Comparison of 2003 & 2002 (Percent of Supplier Respondents) Acquisition 10% 17% Customer Equipment 10% 11% Replace/Upgrade 45% 67% Building & Equipment Added Capacity 20% 30% 33% 39% 0% 20% 40% 60% 80%

25 Converters Capacity Utilization (Percent 24/7 weighted average) 2000 Capacity Utilization 79.9 % 2001 Capacity Utilization 80.6 % 2002 Capacity Utilization 79.7 %

26 Converters Performance 2002 vs 2001Actual The Same 11% 2002 vs 2001 Worse 36% Better 54% 0% 20% 40% 60% 80%

27 Converters Performance 2002 vs 2001Actual and 2003 vs 2002 Expected The Same 11% 14% 2003 vs 2002 Worse 4% 36% 2002 vs 2001 Better 54% 82% 0% 20% 40% 60% 80%

28 Converters Performance 2002 vs 2001 Actual and Expected The Same 11% 9% '02 vs '01 Exp Worse 9% 36% '02 vs '01 Act Better 54% 82% 0% 20% 40% 60% 80%

29 Suppliers Performance 2002 vs 2001Actual The Same 17% 2002 vs 2001 Worse 13% Better 70% 0% 20% 40% 60% 80%

30 Suppliers Performance 2002 vs 2001Actual and 2003 vs 2002 Expected The Same 17% 16% 2003 vs 2002 Worse 4% 13% 2002 vs 2001 Better 70% 80% 0% 20% 40% 60% 80%

31 Suppliers Performance 2002 vs 2001 Actual and Expected The Same 5% 17% '02 vs '01 Exp Worse 5% 13% '02 vs '01 Act Better 70% 90% 0% 20% 40% 60% 80% 100%

32 Converters Most Important 2003 Issues Materials Costs 94 Mkt Comp Volume US Economy 41 Capacity 36 Technology 25 Govt Regs Labor Relative Importance Based on Combined Totals

33 Suppliers Most Important 2003 Issues Material Costs 69 Mkt Competition US Economy Volume 42 Technology 34 Cust Consol 30 Energy 20 Pkg Growth Relative Importance Based on Combined Totals

34 FLEXIBLE PKG TOP 2003 ISSUES RANK #1 #2 #3 #4 #5 #6 #7 #8 Volume US Economy Capacity Technology Govt Regulations Labor CONVERTERS Material Costs Market Competition Material Costs Market Competition US Economy Volume Technology Customer Consolidations Energy SUPPLIERS Packaging Growth

35 FLEXIBLE PKG TOP CONVERTER ISSUES 2003 versus 2002 RANK 2003 Top Issues 2002 Top Issues #1 #2 #3 #4 #5 #6 #7 #8 Material Costs Market Competition Volume US Economy Capacity Technology Govt Regulations Labor Volume Market Competition Material Costs Customer Consolidations Capacity US Economy Technology Labor

36 FLEXIBLE PKG TOP SUPPLIER ISSUES 2003 versus 2002 RANK 2003 Top Issues 2002 Top Issues #1 #2 #3 #4 #5 #6 #7 #8 Material Costs Market Competition US Economy Volume Technology Customer Consolidations Energy Packaging Growth Volume US Economy Material Costs Market Competition Customer Consolidations Capacity Technology Imports

37 Flexible Packaging Business Costs/Expense Breakdown Materials 53 % Direct Labor 10 % Sales, Mktg, Admin, R&D 10 % Operating Profit 6 % All Other Mfg Costs 21 %

38 Converters & Suppliers Use of Internet (Percent of Respondents) Internet Communication 95% 97% Communicate with Customers 100% 100% Communicate with Suppliers 81% 100% 0% 20% 40% 60% 80% 100% Converters Suppliers

39 Flexible Packaging Internet Business-to-Business Transactions (Percent of Respondents) Printing/Graphics 13% 72% Inventory Control Invoicing Orders Project Management 34% 38% 31% 33% 46% 38% 29% 63% Suppliers Converters 0% 20% 40% 60% 80% 100%

40 Companies Participating in Reverse Auctions on the Internet (Percent of Respondents) 100% with Customers with Suppliers 80% 60% 50% 40% 25% 21% 25% 20% 0% Converter Supplier

41 U.S. Flexible Packaging Market Breakdown by Market Segment Retail Food $ 8 B TOTAL $ 20 Billion Consumer Products $ 2 B Industrial $ 2 B Medical and Pharm. $ 1.5 B Institutional Non-Food $ 1.5 B Institutional Food $ 3 B Retail Non- Food $ 2 B

42 100% CONVERTERS MARKET INVOLVEMENT % of Respondents 80% 60% 40% 20% 0% Retail: Food Retail: NonFood Med & Pharm Industrial Appl Instl: Food Instl: NonFood Consumer Prods

43 FLEXIBLE PKG TOP GROWTH MARKETS RANK #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 CONVERTERS Pharmaceuticals PetFood/Supplies Refrig Meats-Retail Beverages-Retail Medical Devices Dinner Prod/Mixes Produce-Retail Diagnostics-Medical Lawn/Garden Supplies Coffee & Tea-Retail SUPPLIERS PetFood/Supplies Produce-Retail Refrig Meats-Retail Beverages-Retail Snacks-Retail Produce-Institutional Lawn/Garden Supplies Misc.Dry Shelf-Retail Breakfast Products- Retail Pharmaceuticals

44 STATE OF THE INDUSTRY SUMMARY Total US Packaging Market $ 120 Billion Flexible Packaging 17 %, second largest Flexible Packaging Industry $ 20 Billion Growing at 3.9 % /yr, despite 2001 downturn Flexible Packaging 2001 Profit performance relatively favorable versus All US Manufacturers decline Rigid to Flexible conversions continuing Solid Survey participation 60+ %

45 STATE OF THE INDUSTRY SUMMARY Total Materials Used in Flexible Packaging has value of $ 10.7 Billion Imports outpacing Exports Flexible Packaging trade deficit increasing Also more competition for US markets M & A activity continued at slow pace Matl Costs, Vol, Mkt Comp & Economy important issues for Converters & Suppliers

46 FPA s STATE OF THE INDUSTRY The State of our Industry is sound FPA continued 2001 progress into 2002 Building on solid base/foundation for continued progress in the future

Taking Advantage of Change in North American Paper Based Packaging Markets

Taking Advantage of Change in North American Paper Based Packaging Markets 2003 NPTA Leadership Conference New Orleans, LA May 5, 2003 Frank Perkowski Business Development Advisory 770-643-9081 frank@bd-advisory.com