Avery Dennison

Buisiness Marketing Project on

Avery Dennison

Team-4 Divyesh Shetty P.Ajay Goyal Glady Stephen Gopika Purshothaman Tavleen Das

World label industry growth: Asia, China, and India:

The size of the label market in Western Europe is approximately 3 billion SEK. The customers are not a homogenous group of companies and vary significantly regarding size and purchasing philosophies. Some companies make their purchasing decisions locally, and some make the decisions centrally. Providing cost efficient solution requires local production close to the customers‘ production facilities. It appears that the market currently is in a ‗polarization‘ phase. On one hand few major players are driving a consolidation and are becoming truly global players while on the other hand the smaller local/regional players are trying to find niches where they can differentiate their customer offers

World label growth was estimated to develop from 26 billion square meters of all types of labels in 2002-03 to just over 32.2 billion square meters in 2004-05, and to 49.4 billion square meters in 2009-2010. In value terms, world label production is estimated to be USD 61.5 billion in financial year 2005-06. At current rates of value growth (not counting the value addition of smart RFID labels) this would go to USD 78 billion in the 2009-10. The extremely high growth of the Chinese, Indian, and East European label industry has put the estimated production growth in square meters at 8 per cent from 2000 to 2005 and 8.5 per cent from 2005 to 2010

The growth has been quite encouraging in the Asia Pacific, from a share of 34 per cent in 2000-2001 to 38 per cent in 2004-05 and is expected to reach 45 per cent in 2009-2010 if it follows the same growth rate, although held down by Japan‘s growth of around 3 per cent. However China and India will lead the increase in Asia‘s label production share with China achieving 12.6 per cent of world label production and India achieving 6.3 per cent of world

production of all types of labels in 2009-2010 in square meters India‘s rate of label production in square meters is rising faster than China. In 2002-2003 India produced one-third the square meters of China. By 2009-2010 India is expected to increase its production to half that of China. However, the gap between Chinese and Indian label production is expected to increase to 3 billion square meters in that year. The only way that Indian label manufacturers can surpass China is in value by producing very high value labels that are directly exported and by rapid adoption and market leadership in smart and RFID labels where they will have

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to take on or partner the Americans or European Union.

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Indian Label and Tag Industry – An Overview: With the boom in the retail sector, the current economic indicators coming out of India have brought out a period of robust growth. The growth in the retail sector has led to the development of the Branding & Design (Label & Tag inclusive) Industry with its increasing complexity and dynamism. With the increasing turn of the international retailers‘ and brand owners‘ attention towards low cost manufacturing bases the export boom has crept into India certainly. This trend has also been increasingly seen as more international label producers are turning to their production bases in the subcontinent. This has been either through increasing joint ventures, mergers and acquisitions or by setting up of registered business by the foreign investors. As a part of their strategic plan the major label producers have restructured them by positioning their production bases in the low cost regions of

the world. They have also undergone through broad termdiversification by potentially developing into branding and concept companies. So the basic Label & Tag Industry has become a subset of a broader industry definition – better termed to be as the Branding Solution Industry. The prospects of the Branding Solution Industry have even more proliferated due to the increasing emergence of the Indian retailers and brand owners in the international arena as mega- or super- brands. The Label market in India has been growing at a phenomenal rate of over 20 per cent/annum in the last 2-3 years, a trend that is expected to be sustained through this decade to 2010. This has been with the assistance of several technologies side by side that are competing to add more value and utility to labels. Bar-coded labels are growing by 30 to 35 per cent. Although the per capita consumption of labels in India is the lowest in any region that has been quantified and analysed the growth rate as mentioned above has been exceptional. Even China‘s rate of growth has recently declined from 14 per cent to 13.1 per cent. The growth trend in Indian Label Industry has been featured in following exhibit.

AVERY DENNISON: OVERVIEW Avery Dennison is a fortune five hundred company which provides brand identification solutions to the apparel and retail industry. They are the global expert and customer driven innovators in retail tag, ticketing brand and product identification. Avery Dennison Corporation produces pressuresensitive materials (such as self-adhesive labels), office products, and various paper products. R. Stanton Avery founded Avery in 1935. The Avery Dennison Corporation was created in 1990 by a merger of Avery and Dennison. Avery Dennison is a considerably large company and ranks 382 on

the Fortune 500 list. The company operates in more than 60 countries including South Asia, UK, USA, Japan, China, and Egypt. It is headquartered in PASADENA, CALIFORNIA, USA and employees approximately 35,000 employees all over. The company recorded more than 6,710.4 million $ as their net sales in the fiscal year ended December 2008.it has a 70 year experience in product identity industry. By leveraging their unparalleled scale and capabilities they deliver innovative solutions and superior service across the global supply chain enabling their customers to attain and exceed their business goals. Their key strength is to identify the global opportunities while serving local markets

BUSINESS DESCRIPTION: The Company has operations in the following businesses: Pressure-sensitive materials segment Retail information services segment Office and consumer products segment Other specialty converting businesses

NET SALES BY SEGMENT 9% PRESSURE SENSITIVE MATERIALS

14%

RETAIL INFORMATION SERVICES 54% 23%

OFFICE AND CONSUMER PRODUCT OTHER SPECIALITY CONVERTING BUSINESS

Graph Showing the percentage of the total net sales by segment

PRESSURE-SENSITIVE MATERIALS SEGMENT The Pressure-sensitive Materials segment manufactures and sells Fasson-, JAC-, and Avery Dennison-brand pressure-sensitive materials, Avery-brand graphics and graphic films, Avery Dennison-brand reflective products, and performance polymers. Pressure-sensitive materials consist primarily of papers, plastic films, metal foils and fabrics, which are coated with Company-developed and purchased adhesives, and then laminated with specially coated backing papers and films. They are sold in roll or sheet form with either solid or patterned adhesive coatings, and are available in a range of face materials, sizes, thicknesses and adhesive properties. These materials are sold to label printers and converters for labeling, decorating, fastening, electronic data processing and special applications on a worldwide basis. Graphic products consist of a variety of films and other products sold to the architectural, commercial sign, digital printing, and other related markets. The Company also sells cast and reflective films to the construction, automotive, and fleet transportation markets, scrim-reinforced vinyl material for banner sign applications, and reflective films for traffic and safety applications. The Company‘s graphic and reflective businesses are organized on a worldwide basis to serve the commercial graphic arts market, including wide-format digital printing applications. It also manufactures and sells films that are used for outdoor, weather-resistant applications. Performance polymer products include a range of solvent- and emulsion-based acrylic polymer adhesives, protective coatings and other polymer additives for internal use, as well as for sale to other companies. RETAIL INFORMATION SERVICES SEGMENT: The Retail Information Services segment designs, manufactures and sells a variety of price marking and brand identification products for retailers, apparel manufacturers, distributors and industrial customers on a worldwide basis. Avery Dennison‘s brand identification products include woven and printed labels, graphic tags and barcode tags. Its information management products include price tickets, carton labels, RFID tags and printing applications for supply chain and security management. The Company‘s solution enabling products include barcode printers, moulded plastic fastening and application devices and security management products. OFFICE AND CONSUMER PRODUCTS SEGMENT: The Office and Consumer Products segment manufactures and sells a range of Avery-brand printable media and other products. This segment‘s products are sold through office products superstores, mass market distributors, wholesalers and dealers. Avery Dennison manufactures and sells a range of Avery-brand products for office, school and home uses: printable media, such as copier, ink-jet and laser printer labels, related computer software, ink-jet and laser printer card and index products; and

organization, filing and presentation products, such as binders, dividers and sheet protectors. The Company also offers a range of other stationery products, including writing instruments, markers, adhesives and specialty products under brand names, such as Avery, Marks-A-Lot and HI-LITER. The extent of product offerings varies by geographic market. OTHER SPECIALTY CONVERTING BUSINESSES: Other specialty converting businesses includes the Company‘s specialty tape, industrial, performance films and automotive products, business media, RFID and security printing businesses. These businesses manufacture and sell specialty tapes, highly engineered films, RFID inlays, pressuresensitive postage stamps and other converted products. The specialty tape business manufactures and sells single- and double-coated tapes and adhesive transfer tapes for use in non-mechanical fastening, bonding and sealing systems in various industries, which are sold to industrial and medical original equipment manufacturers, converters, and disposable diaper producers worldwide. These products are sold in roll form and are available in a wide range of face materials, sizes, thicknesses and adhesive properties. Avery Dennison‘s industrial and automotive products businesses primarily consist of custom pressure-sensitive and heat-seal labels for the automotive and durable goods industries. These products are sold primarily to original equipment manufacturers. The Company‘s performance films business produces a variety of decorative and functional films, primarily for the automotive industry, that are designed for injection mold applications. Its business media business designs and markets customized products for printing and information workflow applications. Avery Dennison‘s RFID business manufactures RFID inlays and labels and makes use of its existing distribution by marketing to its label converting customers. Its security printing business manufactures and sells self-adhesive battery labels to a battery manufacturer, and self-adhesive stamps to the United States Postal Service.

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Heat Transfer Printed - Label Woven - Label Product Line

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EMPLOYEES / FACILITIES: The Company employs more than 36,000 men and women in over 200 manufacturing and distribution facilities in more than 60 countries around the world. In India it employs around 1100 manpower.

FINANCIAL FACTS: For 2008, sales were $6.7 billion and the Company ranked number 376 on the 2008 Fortune 500 list of the largest U.S. industrial and service companies.

MARKET PRESENCE: Avery Dennison's self-adhesive technology and applications are an integral part of products used in virtually every major market and industry, with product sales in over 89 countries worldwide.

FOCUS AREA: The company has remained focused on a single strategic objective: to drive profitable growth by providing innovative solutions that transform information and elevate brands. A fundamental part of this strategy is to continue to safeguard the investments made in several emerging

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business opportunities in existing and adjacent markets. .

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Continuously improving organisational productivity and people is another focus area for Avery Deninson. Enterprise Lean Sigma (ELS) is an ongoing, Companywide effort to promote revenue and profit growth by reducing waste, accelerating productivity and enhancing customer service. To date, thousands of employees have participated in hundreds of continuous improvement or ―Kaizen‖ events and delivered impressive results

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Achieving the strategic growth priorities requires capable leaders and employees who can successfully manage rapid change.So the company continues to make a significant investment in leadership development—as well as ELS—training in order to equip the leaders with skills necessary to lead and compete in a complex, global business environment.

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In 2009, 25 Leadership Development Training Forums are planned to strengthen the business leadership and inter-personal competencies of high-potential leaders across the Company.

Over the years, Avery Dennison has proven to be an extraordinarily resilient company. By sticking to the fundamentals—product innovation, exceptional quality and great service—it is their strong belief that they will not only weather the challenges that confront them today, but we will also create a stronger, more energized Company in the future

DISTRIBUTION NETWORK As part of its corporate strategy, Avery Dennison has worked closely with the converting and printing industries in India to grow their businesses and take advantage of opportunities provided by the spectacular growth of the Indian economy during the last ten years. Avery Dennison has major manufacturing operations in Gurgaon, which it opened in 1997, and Bangalore, which was part of its 2007 acquisition of the global label and tag maker, Paxar. Avery Dennison‘s third manufacturing facility in India is near Pune and represents an investment of over US $13 million .The Company also maintains a network of sales and distribution centres including locations at Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata and has a presence in Bangladesh, Sri Lanka and Pakistan.

Virtually every Avery Dennison business group has a presence in India, including its Roll Materials, Retail Information Services, Graphics and Reflective and Specialty Tape business segments. The Company employs over 1100 people in India and more than 2500 in South Asia.

COMPETITORS: Since Avery Dennison makes hundreds of different products, the company faces competition from both big companies with a diversified line of products and smaller narrowly-focused companies. Main Competitors by Business Segment:

Pressure-sensitive Materials

Office and Consumer Products

Retail Information Services

3M Company (MMM)

Acco Brands (ABD)

Checkpoint Systems (CKP)

UPM-Kymmene Oyj (UPM)

Esselte Corporation (Private)

SML Group (Private)

Bemis Company (BMS)

Shore to Shore (Private)

Pressure-sensitive Materials Competitors: 3M Company (MMM) - 3M is one of the world's largest multi-industry companies as they sell a wide range of items, such as LCD TVs and band-aids, in a variety of markets. However, the company has a very strong presence in the pressure-sensitive materials market; the company's biggest name adhesive products are Scotch Tape and Post-It. Both brands are AVY's biggest competition in the business. UPM-Kymmene Oyj (UPM) - UPM is a global forest industry group that makes products such as magazine papers, newsprint, specialty papers, wood products, and self adhesive label materials. These adhesive materials only accounted for 12% of the company's revenue in 2006 however, but still remains a big competitor of AVY in the business. Bemis Company (BMS) - Although the company focuses on making flexible packaging material, the company also has a strong pressure sensitive materials business. These products are sold in the label, graphic, and technical markets.

Avery Dennison vs. Pressure Sensitive Materials

Company

Avery Dennison 3M Company (MMM) UPM-Kymmene Oyj (UPM) Bemis Company (BMS)

Market

2007 Total

2007 Gross

2007 Operating

2007 Net

Cap

Revenue

Profit

Income

Income

$4.31B

$6.3B

$1.7B

$375M

$304M

$49.97B

$24.5B

$11.7B

$6.2B

$4.1B

$8.18B

$10.0B

$10.0B

$534M

$424M

$2.56B

$3.6B

$676M

$286M

$182M

Office and Consumer Products Competitors: Acco Brands (ABD) - is a top supplier of general office and business supplies. They sell office supplies ranging from staplers to binders, document finishing such as binding and lamination, and computer product accessories such as mice and keyboards. Its office products segment represent half of the company's annual revenue and thus make it a top competitor of AVY in this business.

Company

Market

2007 Total

2007 Gross

2007 Operating

2007 Net

Cap

Revenue

Profit

Income

Income

$6.3B

$1.7B

$375M

$304M

$1.9B

$590M

$16M

$(0.9M)

Avery Dennison $4.31B Acco Brands (ABD)

$454.96M

Retail Information Services Competitors: Checkpoint Systems (CKP) - Checkpoint is a global producer of identification, tracking, security, and merchandising products for the retail industry. Since AVY's acquisition of Paxar, Checkpoint has become the company's largest competitor in the business.

Company

Avery Dennison Checkpoint systems (CKP)

Market

2007 Total

2007 Gross

2007 Operating

2007 Net

Cap

Revenue

Profit

Income

Income

$4.31B

$6.3B

$1.7B

$375M

$304M

$837.63M

$834M

$346M

$67M

$59M

Avery Dennison - Paxar – the market leader

With the recent acquisition of Paxar Corporation, Avery Dennison is a clear signal of being the market leader within the boundary classified. Avery‘s acquisition of Paxar completed by June,2007 has substantially incremented its net sales from USD 5.58 billion in 2006 to USD 6.31 billion in 2007 with a net income value of USD 303.5 million (Annual Report – Avery Dennison 2007).

The projected annual cost synergy is expected to be USD 90-100 million by end of 2009. The development was a perfect strategic fit with complimentary capabilities of Avery Dennison and Paxar advancing leaps to deliver an exceptional strategic edge and superior services to the customer at every level of the global retail supply chain with an aim to achieve increased efficiency and reduced costs in the rapidly changing and competitive market place with more investments in product innovation and R&D for delivering better service.

Pricing Strategy: From late 2006 through the end of 2007, Avery initiated new cost reduction actions that were expected to yield annualized tax savings, in addition to cost synergies from the integration of Paxar discussed already. These restructuring along with cost savings from productivity improvement initiatives, minor benefits from foreign currency translation, planned divestitures of several low-margin businesses and product lines – termed together as ―Cost Reduction Actions‖ are favourable for the Consolidated Financial Statements to improve the Company‘s global operating efficiencies. It also includes reduction of fixed asset costs and lease cancellation charges. The restructuring actions resulted in headcount reductions of approximately 1,150 positions across all the geographic locations of Avery Dennison and it showed its ability to reduce its basic costs to increase its profitability. Larger volumes of trade also yielded possibilities for cost synergies on the basis of favourable economies of scale, to respond to the changes in market conditions and the economic outlook. Investment in development activities and new production facilities were intensified for more productivity and margin improvement, taking aggressive steps to reduce cost structure .

Price Management Product price management was also essential in maintaining relationship with the customers. Working closely with key retailers and identifying the best practices for their business, Paxar has developed a solution to create professional looking labels with a portable labelling solution. This ensures not only a savings in time and money, but also ensures price integrity and better brand image. By understanding the needs of the retailer, Paxar was able to put forward a solution that allows staff to produce labels and tags anywhere in the store. The markdown price is calculated and reprinted accurately and consistently at the point of markdown, without detracting from the quality and brand image of the original label. The whole process is now faster so productivity has increased throughout the store and costs have been cut. Paxar‘s large volume of business also enables to offer more benefits than smaller label manufacturers at competitive pricing.

Product Differentiation Strategy: Paxar offers a wide range in its product portfolio as a ―one-stop labelling resource‖ to coordinate all sorts of labelling solutions to enhance brand image or manage complex variable data offering labels with Oeko-Tex approval. Paxar‘s diversified product assortment including added-value trims and packaging provides full garment labelling kits from one location. The company manufactures woven, printed and bar code labels for clothes and merchandising tags for retailers in India with its India-based facilities generating about $10 million sales in 2004. Paxar is also at the forefront of RFID, EAS and brand protection labelling and produces biannual fashion label collections that add inspiration and innovation to labelling Market Innovation Strategy – R&D: As one of the Company‘s core values, innovation has been part of the culture and success of Avery Dennison. This creates an environment that fosters creativity and encourages new ideas and a company-wide commitment to develop unique products and services that fulfil unmet customer needs. Successful implementation of new manufacturing technologies and installation of manufacturing equipment with timely development and market acceptance of new products has always been of key importance Avery Dennison-Paxar.

Avery Dennison‘s Retail Information System Services (RIS) provides brand identification and supply chain management solutions primarily for manufacturers and retailers, including tag and label design and printing; inventory and shipment tracking; and data management systems. Paxar has also made an increase in the research and development expenses for product innovation, design and testing of new products and applications. Research and development expense was USD 95.5 million in 2007, USD 87.9 million in 2006, and USD 85.4 million in 2005.

Paxar India's facilities has introduced a great mode of labelling flexibility by perfectly blending the options of delivering the benefits of both service bureau operations and in-plant, enabling its customer to respond quickly to frequent order fluctuations, seasonal variations and emerging fashion trends. Paxar‘s worldwide network of professional service bureaus of manufacturing & stock-keeping produce, co-ordinate and deliver labels direct to the customer‘s chosen production site or distribution centre. It also has cost-efficient in-plant labelling systems which reduce stocks and delivery time dramatically by enabling production of labels in real time, efficiently. These solutions utilize the same printers and software as used in their own facility and enable to produce labelling on demand in the same location as garment manufacturing – perfect for a fast supply chain over multiple locations. Its Web-based global data management system designed with various web tools fulfils not only its customers' individual needs but also adds better interface for them to work.

Integration Strategy: The acquisition of Paxar could be termed as a perfect example of seamless synergy or integration to accelerate the growth and profitability of the portfolio of the Avery Dennison Group expanding the size of its core business with excellent growth prospects and return and with little adverse impact of its customers. The acquisition has strengthened the business volume of Avery worldwide, tagged with the development in the Retail Information Services (RIS). Asia, particularly China and India are the rapidly growing markets were it has gained a larger foothold. The merger has led to the horizontal integration of Avery Dennison India and Paxar India Private Limited which has deepened the geographic reach of the company in the developing market of India featured by a solid and long-term growth strategy. The key logics of this acquisition, which is significant for the consolidation trend overall, are economies of scale, geographical coverage and complete product offering.

As a global player, Paxar, work with many different retailers and brands, manufacturers and suppliers in numerous types of supply chain networks and is aware of the importance of real time and transparent global communication, integrated processes and data management. With increased shift in the production and manufacturing bases of major International retailers and brands to the Indian subcontinent and the growth of domestic retail sector too, Avery-Paxar aims to develop more complicated multi channel and multi location chains which caters the need for speed, accuracy and communication.

Completing this acquisition in the perspectives of substantial growth opportunities in India would strengthen Paxar's position as a leading provider of solutions in one of the world's fastest growing apparel markets. Paxar‘s local service and global capability combines to ensure consistent quality and facilitate a quick-response supply chain giving the possibility to place and view label orders on-line, as well as receive automated print jobs for in-plant printing systems. Fast, accurate data systems drive the global labelling capability which is critical to supply chain management. In addition to the worldwide manufacturing locations, Paxar also has a full line of in-plant printing solutions which enable you to print your own labels and tickets directly in your own facilities

SWOT ANALYSIS OF THE COMPANY:

STRENGTHS:

Mergers & Acquisition

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Avery Dennison acquires Paxar - to accelerate the growth and profitability of their overall portfolio by incrementing the size of the core business and product diversity.

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Paxar‘s acquisition of the remaining 50% of its joint venture located in Bangalore, India to form Paxar India Private Limited

Cost & Pricing

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Cost Reduction Action through acquisitions and cost restructuring – This not only builds competitive advantage, but also positions the company for significant improvement in profitability and cash flow when the macro environment improves

Innovation & PD

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Investments in key growth platforms like the emerging markets and Radio Frequency Identification (RFID), technological up gradation and RIS web systems. It has developed innovative solutions related to creative services, product branding, security & retail solutions, price management, garment labelling & RFID.

Commitment to Sustainability

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to achieve business success through responsible economic, social and environmental practices that help build and maintain healthy communities around the world

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ability of the Company to generate sustained productivity improvement

WEAKNESS: Loss in Net Sales : -

This was mainly due to - more Transition costs related to the integration of Paxar operations and other restructuring actions, higher asset impairment and restructuring charges (including acquisition-related charges),more competitive pricing environment and unfavourable product mix.

Product Diversification:

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Concentrating more increase in business volume through more bulk production and logistics and less value addition, the company has comparatively lesser concept solutions for clients

OPPORTUNITIES: Growth – New market growth in packaging and security products and unique requirements due to changing trends

Funding of new product and application development for future growth, identifying product features, services and manufacturing process improvements to build on the strong and sustainable competitive advantages.

Continuing to build a strong organization by hiring and developing high-potential employees and business leaders Accelerating deployment of Enterprise Lean Sigma programs to enhance customers‘ experience through increased productivity and improved service and quality

THREATS: Risk of over saturation and having dealer‘s support erode.

Change in quota arrangements may impact the sourcing of products, thereby impacting the profitability.

Supply Chain:

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Change in the terms or conditions of overseas suppliers or in the political or economic environment could adversely impact overseas supplies fluctuations in cost and availability of raw materials

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the impact of competitors‘ actions, including pricing, expansion in key markets, and product offerings.

Pricing – the degree to which higher raw material and energy-related costs can be passed on to customers through selling price increase, without a significant loss of Volume Legal Proceedings – potential adverse developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties, judgements or settlements

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the financial condition and inventory strategies of customers; customer and supplier concentrations; changes in customer order patterns; loss of significant contract(s) or customer(s); fluctuations in demand affecting sales to customers; impact of competitive products and pricing; selling prices; business mix shift; credit risks; ability of the Company to obtain adequate financing arrangements; fluctuations in interest rates; fluctuations in pension, insurance and employee benefit costs; impact of legal proceedings

EFFECT OF RECESSION ON THE COMPANY: The growing economic and credit crises in 2008 significantly reduced consumer spending all over the world. During the second half of the year many customers reduced their inventories and orders while others implemented mandatory shut down late in the year these detoriating market conditions, combined with the rapidly rising raw materials costs, lowered companies profits despite reductions to our fixed cost structure and price increase actions. But despite of so many hurdles Avery Dennison had a number of significant successes: It increased our free cash flow to records to record levels, giving us greater flexibility to invest in programs for future growth. They introduced a number of unique products-including Avery –brand customizable binders, new removable graphics film for the architectural and promotional markets and growing line of eco-friendly products. They identified and entered new markets and regions that offer significant growth potentialsuch as the expansion of our business in china and India. Throughout the recent turmoil with in the financial markets, company retained uninterrupted access to capital to meet our operating needs.