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Roland Berger: Winning in the packaging world
1. September 2019
Winning in the packaging world
How the most successful companies create shareholder value
2. Management summary
Over the last 15 years, our extensive work in the
Industrials sector has led us to take an in-depth look
into how companies create value for their shareholders
– the main objective of publicly traded corporations
in North America and Europe. As an analytical
underpinning to our strategy and operations support to
the packaging industry, Roland Berger regularly
monitors the financial performance of nearly 60
packaging companies headquartered in the US or in
Europe.
The Winners Analysis is both a diagnostic framework to
understand historical performance and a blueprint for
future corporate strategy development and execution.
Winners are companies that consistently deliver
superior risk-adjusted profitability and growth. These
companies deliver superior shareholder returns. This
tool helps companies understand their performance
relative to the industry.
Our study shows that Winners share four discrete
strategic characteristics. Firstly, Winners possess a com-
prehensive understanding of their core competencies,
develop a unique business model that leverages these
competencies, and focus their participation in market
segments where the business model is advantaged.
Secondly, Winners have strategically coherent portfolios,
derived from a combination of clear strategic intent, a
portfolio of businesses that enables the intent, and a
parenting advantage over these businesses.
Thirdly, Winners drive financial scale via larger market
capitalizations (size) and a clear risk-reward proposition.
Lastly, Winners prove their ability to execute by clearly
communicating their strategic intent, pursuing a
disciplined approach to achieve competitive advantage,
actively managing their portfolio, and systematically
standardizing their functions and processes.
2 Roland Berger Focus – Winning in the packaging world
3. Contents
1. The Winners Analysis ...................................................................................................................4
What are the financial metrics that drive shareholder value?
2. Who wins in the packaging industry? ............................................................................... 7
Any type of company can succeed
3. The foundation of success .........................................................................................................8
The Winners in the packaging industry share four distinct strategic characteristics
Coverphoto:gerenme/iStock
Winning in the packaging world – Roland Berger Focus 3
4. 1. The Winners Analysis
What are the financial metrics that drive shareholder value?
While the packaging industry has been strong overall of
late, some companies have proven that they can
consistently outperform the pack – Roland Berger takes
an in-depth look into how the most successful packaging
companies are creating value for their shareholders.
Given the wide range in shareholder returns across the
industry (median returns of 10.8% per year for the top
quartile vs. -2.2% for the bottom quartile), we set out to
answer the following three questions:
1. What are the financial performance metrics that
drive shareholder returns?
2. Who are the companies that consistently deliver top-
tier financial performance relative to the industry
(Winners)?
3. Can we identify the key strategic attributes common
to the Winners?
The result of this multi-year effort is a product that we
refer to as the Winners Analysis. It provides a diagnostic
framework to understand historical performance as well
as a blueprint for future corporate strategy development
and execution. A
Source: Roland Berger
INPUTS
Strategic characteristics
OUTPUTS
Financial performance and shareholder return performance
Risk-adjusted profitability
Investedcapitalgrowth
Business
leadership
Strategic
coherence
Proven ability to execute
Financial
scale
25
15
-15
-15 15
5
-5
-5 5
20
-20
-20 20
-25
10
-10
-10 10
0
0
PROFITLESS GROWERS
5%
-2%
11%
5%
UNDERPERFORMERS
WINNERS
CASH GENERATORS
A: The Winners Analysis
A diagnostic framework to understand historical performance and a blueprint for future strategy
4 Roland Berger Focus – Winning in the packaging world
5. The main goal of publicly traded companies is to create
value for shareholders in the form of share price
appreciation (capital gains) and dividends. According to
financial theory, shareholder value is driven by investor
expectations of future financial performance.
Although share prices tend to change with earnings
announcements and one-off events in the short term,
we find that they are primarily driven by the net present
value of investor expectations of long-term financial
performance, particularly in mature exchanges like
those found in North America and Europe.
When developing their expectations of the financial
performance of a company, investors are analyzing its
profitability and growth potential, and adjusting these
metrics for risk. Typically, investors will develop a
financial forecast to build a free cash flow model.
Revenue growth will be used as the growth metric, EBIT
margin percentage as the profitability metric, and the
cost of capital will represent the risk adjustment.
We believe the best metric to analyze growth is the
real growth in the invested capital of a company,
which represents the capital on a company's books that
finances its assets. This is a better metric to measure
growth than revenues, which are more commonly used.
Revenue trends can be misleading due to price volatility,
driven by cost fluctuations or supply and demand
dynamics. Invested capital growth measures the growth
in assets and represents additional investment in the
enterprise and is not as affected by fluctuations in costs.
We believe the best metric to measure risk-adjusted
profitability is the difference between the return on
invested capital (ROIC) and the weighted average cost of
capital (WACC). This is better than EBIT margin because
it is a normalized metric, which measures not only
profitability, but the amount of capital required to
generate the profitability. EBIT margins provide no
perspective on the capital intensity of a company and
therefore may be misleading when comparing
companies with different models. For example, for an
investor looking at two companies with USD 1,000 in
sales and 10% EBIT margin, the one requiring USD 200
of investment is more attractive than the one requiring
USD 2,000. B
The Winners Analysis
provides a diagnostic
framework to
understand historical
performance as well
as a blueprint for future
corporate strategy
development and
execution.
Winning in the packaging world – Roland Berger Focus 5
6. B: The right metrics to measure growth, profitability, and risk
Definition of economic profit in Winners Analysis
NOPAT
Net Operating Profit After Tax
INVESTED CAPITAL
RISK-ADJUSTED PROFITABILITY
Total Debt Total Equity
ROIC WACC
+
–
ROIC
Return on Invested Capital
WACC
Weighted Average Cost of Capital
INVESTED CAPITAL INVESTED CAPITAL
Cost of Equity
Equity After Tax Cost of Debt Debtx x x+
Source: Roland Berger
6 Roland Berger Focus – Winning in the packaging world
7. In this study we looked at 60 packaging processors and
converters headquartered in North America and Europe.
We plotted the two dimensions described above: growth
and risk-adjusted profitability for the past five years,
creating the Winners Matrix. Of the 60 companies
analyzed, 18 stand out with both superior growth in
invested capital and superior risk-adjusted profitability.
Predictably, these companies delivered superior
shareholder returns over the period. We call these
companies the Winners. Winners include well-known,
large players such as Packaging Corporation of America,
AptarGroup, and Berry Global as well as a number of
lesser-known niche companies.
Half of Winners from the most recent 5-year
timeframe (2013-2018) were also Winners from the
previous 5-year timeframe (2008-2013), and only 2 of the
18 Winners were previously Underperformers. This
consistency suggests that the Winners did not simply
get lucky over the past 5 years. They are companies that
have been executing winning strategies for years, leading
to long-term success.
Knowing that certain companies perform better
than others, by itself, is not very useful. The value comes
in knowing what the Winners are doing that is making
them successful. To this end, we examined the Winners
and compared them to the Underperformers (those
companies in the lowest performance quadrant)
and found that there is indeed a common set of
characteristics that Winners share. The remainder of
this study is dedicated to exploring each of these
winning characteristics.
There is indeed a
common set of
characteristics that
Winners share.
2. Who wins in the packaging industry?
Any type of company can succeed
Winning in the packaging world – Roland Berger Focus 7
8. 3. The foundations of success
The Winners in the packaging industry share four distinct strategic characteristics
What are the attributes common to Winners in the
packaging industry? We believe that Winners share four
distinct strategic characteristics.
1 |
WINNERS ARE INDUSTRY LEADERS
Winners own businesses that are leaders in their fields
of play: they have the ability to set the agenda across
their entire portfolio of businesses. In each of their
businesses, they possess a true competitive advantage
enabling them to define the price-setting mechanism,
and often set pricing, in their chosen market segments
of participation.
Winners drive business leadership by combining
threeelements.Firstly,Winnerspossessacomprehensive
understanding of the core competencies in each
business. Secondly, Winners develop a unique business
model that leverages these competencies to both create
value for their customers and capture and defend this
valueforthem.Thirdly,Winnersfocustheirparticipation
in customer segments in which this business model is
advantaged, with the total size of the customer segments
large enough to allow for business unit scale, i.e. the
business is viable even by focusing exclusively on these
segments.
For Winners, business leadership manifests itself in
the financial performance of their reporting segments,
which achieve leading market shares or the highest level
of risk-adjusted profitability in the broadly defined
markets for the products that they sell.
To illustrate, let's look at CCL Industries. CCL
Industries, based in Canada, is a global supplier of
labels and label technology to businesses as well as
individuals. CCL, whose market capitalization has risen
by ~600% since the beginning of 2013, serves has a
prime example of the importance of occupying
leadership positions in areas of participation.
Over 90% of the company's revenue comes from its
three largest business units: CCL Label, Avery, and
Checkpoint Systems. Each of these three businesses is a
leader in its respective market. CCL Label is the world's
largest converter of pressure sensitive and specialty
extruded film materials. Avery is the world's largest
supplier of labels and label software for short-run
printing by businesses and individuals. Checkpoint
Systems has an approximate market share of 40% in
electronic article surveillance (EAS) label technology.
CCL's scale means that its businesses have the ability to
invest in the state-of-the-art manufacturing facilities
and new technologies required to stay ahead of the
competition. Additionally, as a price-setter in its primary
markets, CCL can pass increases in raw material costs
on to its customers.
Looking more closely at the Avery business segment,
we can clearly see the effect that industry leadership has
on the company's profitability. Avery has achieved a level
of brand recognition that is unique in its industry,
allowing it to market its products directly to consumers
in a way that most companies in the packaging industry
cannot. Avery can also charge a price premium for its
branded products, which is unique in an otherwise
commoditized market. As a result, Avery's EBITDA
margin has hovered around 21% over the past 3 years
compared to a packaging industry average of about 12%.
As the packaging industry undergoes an era of
unprecedented disruption, Winners are finding it
increasingly necessary to embrace innovation. In
2018, Winners had median RD spend of USD 13.2 m
of revenue on RD compared to USD 5.2 m for
Underperformers. Over the past five years, Winners have
grown their RD budgets by a median of 24% compared
to -7% for Underperformers. Being at the forefront of
innovation and emerging trends is essential for Winners
to maintain their ability to continue setting the agendas
in their respective markets.
8 Roland Berger Focus – Winning in the packaging world
9. 2 |
WINNERS HAVE STRATEGIC COHERENCE
Strategic coherence begins with strategic intent.
Winners articulate a clear vision that describes what
they want to be, supported by a distinct, overarching
value proposition that captures what they stand for as a
company.
Once a company has defined its strategic intent,
it then needs to focus on building a portfolio of
businesses that is coherent with this intent. We believe
a disproportionate amount of attention is given to the
synergy potential of businesses within a portfolio rather
than the coherence of these businesses to the strategic
intent. In our view, synergies (production assets,
customers, markets) help maximize the value of a
strategically coherent portfolio or enable a buyer to
ascribe value to an acquisition target but should not
be paramount to the strategic rationale behind a
combination or a divestiture. Winners tend to promptly
divest businesses that are neither coherent nor have
such a cash generation or efficiency role to play in the
transition towards the strategic end state.
For an example of strategic coherence, we can look
to AptarGroup, a leading global supplier of packaging
solutions. While Aptar participates in a number of
different industries, the company has stated that
growing its pharmaceutical business is a top strategic
priority. Pursuant to this goal, Aptar has made a handful
of acquisitions over the past twelve months that
demonstrate its commitment to building a coherent
portfolio.
In 2018, Aptar supplemented its own RD efforts by
acquiring CSP Technologies, a leading provider of active
packaging for the pharmaceutical industry, among
others. While CSP did not add much to Aptar from a
scale perspective, its proprietary material technology,
which controls the absorption and release of gases for
sensitive products, has served as a catalyst for Aptar to
These strategic
investments further
strengthen our
best-in-class pharma
business and increase
our ability to improve
our long-term growth
pipeline by adding
depth to our service
offerings.
Stephan Tanda, President CEO of AptarGroup
achieve a global leadership position in the emerging
field of active packaging.
Earlier this year, Aptar announced the acquisition of
two more pharmaceutical companies. Nanopharm,
based in the UK, helps developers of orally inhaled and
nasal drug products understand the impact of materials'
properties and processing conditions on product
Winning in the packaging world – Roland Berger Focus 9
10. functionality. The second company, Gateway Analytical,
provides testing services for developers of drugs and
medical devices. At first glance, this pair may appear to
be strategically inconsistent for Aptar as neither company
is a packaging supplier. However, through these new
businesses, Aptar will be able to leverage its expertise in
materials as well as its existing customer relationships
to participate in a new area of the pharmaceutical value
chain.
In addition to establishing strategic intent and
building a coherent portfolio of businesses, Winners
ensure that they have a parenting advantage over their
individual business units. As described above, the
portfolio of a Winner shares a common business model
in order to drive a clear overarching value proposition
to its customers. The corporate management of
Winners typically has strong competencies and
industry knowledge to deliver this business model
successfully across different businesses.
3 |
WINNERS HAVE FINANCIAL SCALE
Winners drive financial scale by achieving larger market
capitalizations. The greater a company's market
capitalization, the more likely it is to be included in well-
known, actively traded financial indices such as the SP
500 and the Dow Jones Industrial Average (DJIA) in
the US, the FTSE 100 in the UK, or the German DAX.
Inclusion in such indices generally enables companies
to achieve greater relevance to investors: it projects trust
and implies that the company's stock will be actively
traded by investors trying to replicate or exceed the
performance of the index. It also drives higher analyst
coverage, which makes information about the company
more widely available. The associated higher trading
volume increases the liquidity of listed stocks, ultimately
leading to a lower cost of capital. Source: Capital IQ, Roland Berger
C: Differences in scale and scale gained via MA
between Winners and Underperformers
Winners perform significantly better
3.5
Winners
1.0
Under-
performers
AVERAGE MARKET CAP
[USD bn; 2018]
1.9
Winners
0.3
Under-
performers
AVERAGE MARKET CAP
GAINED VIA
ACQUISITION
[USD bn; 2013-2018]
Winners have
a market cap
4x that of
Under-
performers
Winners have
prioritized
building scale
via acquisition
10 Roland Berger Focus – Winning in the packaging world
11. Source: Capital IQ, Roland Berger
We find that Winners are more likely than Under-
performers to have larger market capitalizations, and
therefore achieve higher representation in actively
traded indices. In our analysis, approximately 62% of
Winners were members of one the world's most actively
traded stock exchanges, compared to less than 39% of
Underperformers.
Looking at the companies in Roland Berger's
Packaging Index (the set of publicly-listed companies
usedintheWinnersanalysis),wecanseealargedifference
in market capitalization and revenue between those
identified as Winners and the Underperformers.
Winners had an average market cap of USD 3.5 bn vs.
USD 1.0 bn for Underperformers. Not only do Winners
have scale, but they are also committed to further
increasing their scale. Over the past five years, Winners
have added approximately USD 1.9 bn in market
capitalization via acquisition compared to just USD 300
m for Underperformers. C D
4 |
WINNERS HAVE A PROVEN ABILITY TO EXECUTE
Winners deliver superior results by developing and
implementing strategies to drive business leadership,
strategic coherence, and financial scale. We believe
there are four key facets to execution: i) clear commu-
nication of the strategic intent, ii) disciplined approach
to achieve competitive advantage, iii) active portfolio
management, and iv) systematic standardization of
functions and processes.
4.1 Clearcommunication ofthe corporatevision and
strategy
Winners clearly communicate their strategic intent and
successfully execute against it. By providing investors
with line of sight into their future trajectory, Winners
manage investor expectations.
D: Share of group that is traded on one of
the world's top 20 exchanges as measured
by USD bn traded per month
Winners are members of the world's most actively
traded exchanges
62%
39%
WINNERS
UNDER-
PERFORMERS
Winning in the packaging world – Roland Berger Focus 11
12. 4.2 Disciplined approach to achieve competitive
advantage
Winners follow a disciplined approach to identify and
deploy their competitive advantage to drive business
leadership: they understand their core competencies
and how to translate them into an advantaged value
proposition and business model.
4.3 Active portfolio management
Winners engage in active portfolio management to drive
business leadership, strategic coherence, and financial
scale. Winners typically do 50% more transactions
than Underperformers, with a mix of bolt-on and large
acquisitions, as well as divestitures. The majority of
Winners also conduct large, transformational
acquisitions. While these transactions provide Winners
with financial scale, the main driver is generally to either
accelerate the pace towards business leadership in their
existing businesses or to acquire new leadership
positions that are coherent with the company's strategic
intent. E
4.4 Systematic standardization of processes and
centralization of key functions
Winners deploy corporate processes across their
businesses and centralize key functions, enabling them
to strengthen their parenting advantage over their
portfolio of businesses and achieve efficiencies in
their indirect costs. This systematic approach to
standardization and centralization enables Winners to
achieve scale economies in their sales, general, and
administrative costs (SGA).
In 2018, Winners spent on average less than 10%
on SGA expenses (not including RD), while
Underperformers averaged over 15% during this time,
maintaining fairly high administrative costs since
2013.
E: Average # of MA deals completed
Winners have done more MA deals
[2013-2018]
Acquisitions
Divestitures
5.5
Winners
3.6
2.7
4.7
0.8
0.9
Under-
performers
Source: Capital IQ, Roland Berger
12 Roland Berger Focus – Winning in the packaging world
13. F: Berry Global's profit margin has grown along
with its revenue
Berry's revenue and profitability from 2009-2018
BERRY GLOBAL REVENUE
EBITDA MARGIN
[USD bn]
4,257
2010
4,958
2014
7,869
2018
14%
17%
11%
Revenue EBITDA
For an example of a company with a proven ability to
execute, we can look at Berry Global. Against the
backdrop of a rapidly consolidating plastic packaging
industry, US-based Berry Global has established a
consistent and well-communicated strategy of achieving
a global leadership position in the industry through
building scale.
In March, Berry announced the acquisition of RPC, a
leading European producer of plastic packaging.
The deal increases Berry's revenue by about 50%, taking
it to ~USD 13 bn and putting it into an approximate first
place tie with Amcor as the world's largest plastic
packaging company. The acquisition not only drives top-
line growth as Berry's commercial reach is expanded to
Europe, but also serves to build production scale by
doubling the company's global manufacturing facilities
to around 300.
The acquisition of RPC is consistent with Berry's
well-established pattern of growing scale in a
strategically coherent manner via MA. In fact, over the
past ten years, the company has increased its revenue
from USD 3 bn to USD 13 bn largely through inorganic
growth. During this period, Berry has made at least six
major acquisitions of plastic packaging companies with
revenues ranging from hundreds of millions to several
billion dollars.
Berry has built a reputation for its ability not only to
acquire but to successfully integrate new companies and
operations. Berry has typically been able to achieve
synergies of ~5% of acquired revenue over the course of
its many acquisitions through the implementation of
standard processes, increased bargaining power, and
company-wide integration of newly acquired technology.
The benefits of Berry's ability to execute can be seen in
its EBITDA margin, which has increased from 6% to
10% over the period. F
Source: Capital IQ, Roland Berger
Winning in the packaging world – Roland Berger Focus 13
14. Stay tuned
As a follow-up to this study on the winning characteristics of packaging companies,
Roland Berger will further look at how packaging Winners are realigning their approach
to market in recognition of the greater need for agility and innovation to address longer-
term trends in the industry. We will take a close look at the key trends that will impact
the packaging world and examine how leading companies are positioning themselves for
future success. Below is a snapshot of some of the trends that we will further examine as
part of our follow-up study.
Sustainability
Growing demand for sustainable packaging solutions is leading waste-reduction initiatives
and a focus on the recyclability of materials. New regulations such as an envisioned EU
ban of certain plastic materials will serve to further push sustainability to the forefront of
the industry agenda.
End-consumer focus
Consumers are demanding greater customization for premium and/or easy-to-use
packaging. There is also a rise in end-consumer-driven innovation such as performance/
intelligent packaging (e.g. time-temperature indicating).
Efficiency transparency
Cost remains a key focus for customers and packaging industry participants. Packaging
players must focus on material optimization, investment in equipment to support material
efficiency, and greater ownership of capital investment and design for proprietary
advantage, or they must standardize and emphasize lean, service-based solutions – both
with enhanced TCO focus based on full equipment lifecycle. End-to-end manufacturing
and supply chain transparency will mean a new set of requirements for the industry.
Technology innovation
The advent of digitalization and IoT will reduce costs through automation, but also
generate new solutions for supply chain management and information tracking for end
consumers. The boom in e-commerce requires greater agility from converters to support
last-mile delivery and innovate new products that meet changing packaging requirements.
14 Roland Berger Focus – Winning in the packaging world
15. About us
Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading
strategy consultancies. With around 2,400 employees working in 52 offices in 35
countries worldwide, we have successful operations in all major international
markets. Roland Berger advises major international industry and service companies
as well as public institutions. Our services cover all issues of strategic management
— from strategy alignment and new business models, processes and organizational
structures, to technology strategies. Roland Berger is an independent partnership
owned by around 230 Partners. Its global Competence Centers specialize in specific
industries or functional issues. At Roland Berger, we develop customized, creative
strategies together with our clients. Our approach is based on the entrepreneurial
character and individuality of our consultants.
Roland Berger has extensive experience in supporting leading firms
across the global packaging industry
• Roland Berger has a strong understanding of the global packaging ecosystem,
including key demand markets – We have expertise in all parts of the value
chain, having worked in each sub-segment
• We have provided professional consulting services for many leading global
packaging companies across the food beverage, personal care, and pharma
industries, among others
• Over the past decade, we have completed 100+ projects for packaging
clients, ranging from market competitor analysis to operational excellence
to MA support
Winning in the packaging world – Roland Berger Focus 15