(Mark Burgess, President and CEO of Mauser Packaging Solutions):
The last communication I had with the global organization was regarding the great devastation Hurricane Ian had left in the Caribbean, southwestern Florida, the Carolinas, and Eastern Seaboard of the United States. Today’s update is about a different kind of hurricane, a different type of sustained wind, that has been hitting our Company and hitting us personally.
We all watch the news. The war in the Ukraine, lockdowns in China, significant cost inflation everywhere and the consistent rise in interest rates; these are just a few of the many global events that are affecting all of us at the gas pump, grocery stores and at the bank. Economists and governments are anticipating that business conditions will continue to deteriorate and that the economy will continue to shrink and go into a recession if it already hasn’t.
There is a tremendous amount of uncertainty as the world is facing a time of unprecedented change. Energy costs in Europe have increased by 350% in the last 18 months. As a result of this increase in energy costs, some of our European customers have been forced to shut down operations and as a result have moved capacities to other areas. These changes in operations and capacity may have permanent impact on our European facilities.
As you know, I have been talking about the importance of volume gains all year. Early in the year, our overall volumes were two to three percent last year’s. Unfortunately, those numbers have become much worse over the last several months.
That being said and to be clear, we have businesses like Reconditioning and Medical Waste which are still doing well and are forecasted to continue to do well. Strong performance in regions like South Africa, Turkey, Brazil, Asia show the advantages of our Mauser business model and global reach – we must continue to remain focused on this going forward so that we can overperform versus the market.
As you may know, our business is an “early cycle” business that feels the impact of a recession before many other businesses. Weaker demand has already been hurting all of our business and here are several examples:
- Aerosol business - First our Aerosol business in North America is off 30% from where it was a year ago. Most of this is because weak consumer demand for products after a very strong pandemic demand period.
- IBC business – While we invested in significant new IBC capacity to support our customers’ needs in the last two years, we are now running short shifts because of lack of demand.
- Paint Cans - We have also seen a significant drop off in paint can volumes. Just last week, one of our largest customers ran a 40% off paint sale in order to move inventory off their shelf.
The truth is that our western European and U.S. businesses are weak because of the global economic slowdown. And this, frankly speaking, is where Mauser sells most of its containers.
So, what does all this mean? Really what it means that we need to protect our business and activities that we can control include the following:
- First from a people perspective, we must flex our labor and other variable costs to reflect current demand.
- We must also accelerate EIP actions in all areas of the business.
- We must control variable costs better. We must turn off the lights when we don’t need them on.
- We must control discretionary cost. For example, we must travel only when we really need to.
- We also need to be prepared for the unknown: as market strengthens or weakens. I hope that it strengthens, but if it doesn’t, we will need to take additional courses of action that are much more draconian in purpose.
This means ultimately that we are at a place where we need action versus talk. As such, I am asking from you the following:
- Number one, it is time that we step up and start producing the way that we did years ago and the way we can. We have invested a vast amount in capital over the past 18 months to improve the reliability of our machines. We must now take those extra steps to not only improve productivity but quality as well.
We also need all of you to help the purchasing and logistics function achieve some very lofty goals this year to offset last year’s materials inflation when vendors took advantage of us in a very tight sully chain market. What this means is you must become more involved with purchasing, instead of waiting for them to do something for you.
I also recognize that many things outside of your control have impacted our ability to overperform. You have done the best to overcome supply chain shortages, poor machine reliability because of capital spending constraints, labor shortages and other headwinds. But through our Billion Dollar Plan we have spent millions of dollars in training our teams, millions in fixing machines, millions in adding positions to support innovation and project management support, millions in upgrading facilities to address issues you raised to us, and millions in new growth capital. We must now realize the benefit from these investments.
The best way we can do that is to ensure you are all fully engaged in EIP and SIP and live it every day. That means providing ideas every month on how to make the business better and not rely on others to do it for you. We will start to conduct monthly EIP and SIP updates and reviews for each plant and functional group and we need to accelerate what has been a good program into a great program.
We also will create a new one-time incentive program in 2023 that helps align your involvement in EIP and SIP that help incrementally pay out versus your historic target. More details will be forthcoming on this program, but it’s important and is something you should be excited about.
We can’t overreact to a bad market, but we can’t under react only to find out that we have a bigger problem in six months. Therefore, as your group presidents and other leaders have already communicated to you, we have implemented much stronger management controls like:
- A hiring freeze for all positions where for either new hires or replacements exceptions need to be approved by me and/or the group president.
- All travel approvals that previously might have been more loose now will require in advance written sign off by our, functional EVP, or group president.
- And finally, we will reinforce a culture of much tighter control of expenses in the coming months and implement actions that reflect this.
Thank for your support on all these as we go through a difficult time.
This is a big change from the way we have been operating but in no way does it impact our billion-dollar plan. We will need to focus our capital spending to the best projects, but we will to do thing like:
- We will Invest in a new site in Orlando to support our largest customer’s growth plans as they continue to expand in the market.
- We will Invest in a new reconditioning and IBC location in Toronto that will allow us to consolidate operations and establish a beachhead to drive future growth.
- We will continue to Invest in new capacity expansions in China, Turkey, and Brazil where we are selling niche products for customers and market segments that are unique and not commoditized.
- We will continue to Invest in training for our supervisors and plant managers.
- We will continue to Invest in upgrading our facilities and making them a better place for you all to work.
- And finally, there will be key focus on investments in Safety, Quality, Sustainability and PCR which, as you know, remain unchanged and are foundations of our business and long-term growth plan.
We have lots of challenges, but we also have lots of opportunities. You have overcome headwinds in the past and I have no doubt we will overcome them again. Please engage in our future success by engaging in EIP and SIP and helping our company be the best that it can. Thank you again for your support and I look forward to working with you this year.