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THE VALUE OF PACKAGES

21° CONVEGNO ANNUALE SEZIONE COMPONENTISTICA D’IMPIANTO ANIMP

Tullio Buonocore, Giacomo Franchini

Grand Hotel Villa Torretta, Sesto San Giovanni (Milano), November 24th 2015

2

Packages for the Oil&Gas and Power industry are an Italian stronghold …

~170COMPANIES

~80%EXPORT

>5000 EMPLOYERS

~1.6 BILLION EUR REVENUES

15/20%GLOBAL MARKET

SHARE

3

… with Key Success Factors that are similarto the one of a small EPC Contractor

Packager’s competences

Quality of sub-contractors and equipment / bulk

Understand different specs and requirements

Few assets but efficiently operated

4

A Package is like a tailored suit

≈

5

The on order delivery of a great tailored suit requires similar capability of Packagers

Tailor’s competence Quality of materials

Few assets but efficiently operated

Interpret and accommodate Clients’ preferences

6

THE VALUE OF PACKAGES

WHICH SUSTAINABILITY?

• Packagers act as “small” EPC Contractors•Distinctive Italian

competences for Packages• Packages require specific

competences and know-how

!

7

Objectives of this analysis

•Map the competences of the Italian Packagers• Allow vendors to know where to grow in a

sustainable way• Increase the international visibility of

vendors, especially Small and Medium Enterprises (SME)•Propose value chain actions to increase

sustainability

8

Interviewed ~20 companies and 50+ peopleEPC CONTRACTORS PACKAGERS

12/06 and 3/11

22/05 and 6/1004/06 11/06

11/06

THANK YOU FOR YOUR AVAILABILITY AND CONTRIBUTION.

16/06

29/0722/07

Avv. Guido Maglionico(Legal advisor to ANIMP)

28/0824/09

23/09

24/06

12/10

23/09

29/1003/06

04/06

23/11

26/08

9

Agenda

What is a Package

Market

Players and economics

Sustainability

Proposed actions

10

Definition of Packages

Packages are multidisciplinaryand process-oriented items that are defined by their functionality.

Packages have critical interfaces with the rest of the plant, thus are often highly co-engineered along the value chain and may

have long lead times.

11

What is and what is NOT a Package for this analysis?

MULTIDISCIPLINARY SKID-MOUNTED

PACKAGES

Multidisciplinary competence is the

base to put together various equipment

COMPLEX PACKAGES / SYSTEMS

Special parts of a plant with a specific

functionality

“SIMPLE” SKID-MOUNTED

Simpler skid mounted machineries (e.g.

pumps)

SUB-PACKAGES (PACKAGES-FOR-PACKAGERS)

EPC CONTRACTOR

HIGH COMPLEXITY

MODULES FOR TOPSIDE

EPCPACKAGES

Suppliers of small packages (with specific functionalities) and that are

part of larger packages

SUBSEAPACKAGES

• Heating equipment

• Utilities packages

• …

ORIGINAL EQUIPMENT

MANUFACTURER

12

Multiple names 1 package

Contractor A

Contractor B

Contractor C

TEG Gas Dehydration Package System

(Glycol type)

Gas / Liquid Dehydration Unit

Process Package

Very generic

End-User N

End User M

Glycol Dehydration Package

Gas and liquid dewatering pack. Systems

(glycol regeneration)

Contractor Z

Gas Dehydration Package

∞ 1

13

Leading sources have been considered to set a common language on Packages

INTERVIEWS WITH CONTRACTORS, VENDORS, INDUSTRY EXPERTS

ANALYSIS OF PUBLIC CATEGORIZATION

MAPPING OF KEY VENDORS

14

16 FAMILIES of Packages within 2 GROUPSof categories

ALWAYS IN SCOPE AND FOCUS OF THIS ANALYSIS SOMETIMES CONSIDERED TO BE PACKAGES

HANDLING SYSTEMS

WEIGHING AND PRODUCTION CONTROL

SOLID HANDLING

LIQUIDS HANDLING AND REFUELING SYSTEMS

TRANSFORMATION AND FINISHING PACKAGES

PACKING

CRUSHING AND GRINDING

EQUIPMENT AND SYSTEMS FOR SPINNING LINE

Boilers

Fired Heaters

Waste Heat Recovery Units

Heat Recovery Steam Generators (HRSG)

Waste Heat Recovery with ORC plants

Furnaces

Incinerators

Components and Accessories of Furnaces and Incinerators

Flares

Storage Tanks

Silos, Cylinders and Spheres

PACKAGES

WATER TREATMENT

PROCESS PACKAGES

FLUE GAS TREATMENT

COOLING TOWERS

HEATING, VENTING AND AIR CONDITIONING (HVAC)

FILTRATION, SEPARATION

SKID-MOUNTED PACKAGES

FIRE-FIGHTING SYSTEMS

REFRIGERATION

Water Treatment

Demineralising / Softening /Treating

Condensate

Conditioning And Remineralization

For Water/Oil Separation

American Petroleum Institute (API)

Separator

Corrugated plate interceptor (CPI)

Corrugated Plate Separator (CPS)

Extended Aeration

Bio-Disc

Membrane Bio Reactor (MBR)

Bio-Filter

Moving Bed Bioreactor

(MBBR)

Biological Treatment Package

Stabilization Units

Thickening Units

Dewatering Units

Thermal Drying Units

For Sludge Treatment

Equipment

Air Diffuser

Tanks and basin accessories

Hydro cyclones

Scraper (all types)

Flight scraper

Ion Exchanger

Flotator

Dissolved Air Flotation (DAF)

Induced Gas Flotator (IGF)

Deareator

Vacuum

Thermal

Membrane equipment

For Reserve Osmosis (RO)

For Electrodialysis

(ED)For Capillary distillation

For Ultra and Micro-Filtration

Desalination

Membrane systems

Reverse Osmosis (RO)

Electrodialysis & Electrodialysis

reversal (ED & EDR)

Thermal

Multi-stage flash distillation (MSF)

Multiple-effect distillation (MED)

Vapour Compression

desalination (VC)

Onshore

Offshore

Physical treatment package

Physico-chemical treatment package

Filtering And Clarification

Activated Carbon Package

Polymer Adsorption Package

Adsorption Units

Wastewater, Water and Produced

Water Treatments

Water Sterilization

Chlorination

Ozonation

Ionisation

Ultraviolet Disinfection Systems

Or Colloidal Silver

For Water Flocculation

Odour Control Equipment

Grit Removal

Water Tanks

03.01.12G

03.01.13G

03.01.14G

03.01.15G

03.01.16G

03.01.17G

03.01.18G

03.01.19G

03.01.23G

03.01.20G

03.01.08G

03.01.09G

03.01.10G

03.01.11G

03.01.30G

03.01.31G

03.01.32G

03.01.33G

03.01.24G

03.01.25G

03.01.21G

03.01.22G

03.01.26G

03.01.27G

03.01.29G

03.01.42G

03.01.43G

03.01.40G

03.01.41G

03.01.37G

03.01.38G

03.01.39G

03.01.34G

03.01.35G

03.01.36G

03.01.04G

03.01.05G

03.01.06G

03.01.01G

03.01.02G

03.01.03G

03.01.44G

03.01.45G

03.01.46G

03.01.47G

03.01.28G

03.01

Water Filtration

Pressurefilters

Sand Filters

Ultra Filtration (UF) Package

Self Cleaning Filters

03.01.52G

03.01.54G

03.01.55G

Multi Media Filters

03.01.53G

Filter Media

Cartridge Filters

Bag Filters

03.01.48G

03.01.49G

Basket Filters

03.01.50G

Strainers

03.01.51G

November 2015Rev. 03

Electrodeio-nization (EDI)

03.01.07G

Packages (1/2)

ProcessPackages

TriEthyleneGlycol (TEG)

Fixed Bed Systems with Mol Sieves and

other solid desiccants

Gas Dehydration

Gas Treatments

Oil Dehydration

Oil Desalter

Liquid Hydrocarbon

Treatment 03.02.12G

03.02.04G

03.02.05G

03.02

Pressure Swing Adsorption (PSA)

Membrane

Gas Sweetening

03.02.01G

03.02.02G

Amine

03.02.03G

Sulfur Recovery Unit

Refrigeration

Joule Thompson Expansion

Hydrocarbon Dew Point

Control03.02.08G

03.02.09G

Silica Gel

03.02.10G

Oil Stabilizer

H2 Recovery/ Purification


Membrane

03.02.15G

Methanator

N2 & O2 Production and

Purification


Membrane

03.02.18G

Cryogenic Air Separation Unit

(ASU)

Adsorbent

Catalyst

03.02.21G

03.02.22G

Polishing Units

Vapour Recovery Units


Temperature Swing Adsorption

(TSA)

03.02.24G

03.02.26G

Deliquescent Dryers

MembraneDryers

Refrigerated Dryers

Air Dryers

Regenerative Desiccant Dryers

Dryers

Gas Dryers

Liquid Dryers

Fluid Bed type

Solid Dryers

Rotary type

03.02.31G

03.02.32G

03.02.33G

03.02.34G

03.02.27G

03.02.28G

03.02.29G

03.02.30G

Cryogenic Storage Systems

03.02.23G

03.02.13G 03.02.16G

03.02.14G 03.02.17G

03.02.19G

03.02.20G

Flare Gas Recovery Unit

Inert Gas Generation

03.02.11G

03.02.06G

03.02.07G

Vacuum Swing Adsorption (VSA)

03.02.25G

Flue Gas Treatments

By Means of Thermal

Processes

By Means of Chemical and

Physical Processes

Soil Remediation

Degassing Towers

Desulphurization processes

Wet scrubbers

Flue Gas Desulphurization

Dry Scrubbers

De-Nitrogene Oxide (DeNOx)

Electrostatic precipitator

Spray-dry scrubbers

Dry Regenerative Process

Regenerative Processes

Wet Regenerative Process

Pressure Relief Panels

03.03.09G

03.03.10G

03.03.02G

03.03.03G

03.03.01G

03.03.05G

03.03.04G

03.03.06G

03.03.07G

03.03.08G

03.03.11G

03.03

Fire-Fighting Systems

Gas extinguishing systems and water mist systems units

Fire protection –pressurization

units

Water mist systems skid unit

Sprinkler valve skid unit

Foam systems skid unit

Gas extinguishing systems skid unit

Gas extinguishing systems cabinet

03.07.02G

03.07.03G

03.07.01G 03.07.04G

03.07.05G

03.07.07G

03.07.06G

03.07

System package with Rotary or Reciprocating Compressors

System package with Centrifugal

Compressors

System package, Absorption type

Unit for Air Conditioning

03.04.02G

03.04.03G

03.04.04G

03.04.01G

03.04

CoolingTowers

NaturalDraft

MechanicalDraft

Small Dimensions

03.05.09G

Wet type

Dry type

03.05.05G

03.05.06G

Inducted type

Forced type

03.05.07G

03.05.08G

03.05

Filtration and Separation

Pusher Type Centrifuges

Centrifuges

Horizontal Centrifuges

DecanterCentrifuges

Peeler centrifuges

Other types Of Centrifuges

Vertical Centrifuges

Pressure Filters

Solid-Liquid Filters

Filterpress

Horizontal Plate Pressure Filter

Vertical Pressure Leaf Filter

NutshellPressure Filter

Automatic Pressure Filter

Candle Filter

Pneumatic Pressure Filter

Vacuum Filters

Rotary Drum Filters

Disc Filters

Horizontal Belt Filters

Tilting Pan Filter & Table Filter

Electrostatic Filters (Dust, ...)

Air Filters

Smoke Extraction Equipment

Electrostatic Coalescers, Precipitators

Other Filters

DedustingFilters with Fan

Metal Detectors

Elutriators

Other Separators

Decanters

Film Evaporators

Multi-CyclonesHouse Filters

Separators

Magnetic Type –Solid from Solid

Liquid from Gas

Centrifugal –Dust from Gas

Liquid from Liquid

Solid from Liquid

Air from Liquid

Screens

TravellingBand

Drum

03.08.01G

03.08.02G

03.03.03G

03.08.04G

03.08.18G

03.08.11G

03.08.09G

03.08.10G

03.08.12G

03.08.13G

03.08.14G

03.08.15G

03.08.16G

03.08.17G

03.08.20G

03.08.08G

03.08.19G

03.08.05G

03.08.07G

03.08.06G

03.08.22G

03.08.21G

03.08.26G

03.08.25G

03.08.28G

03.08.27G

03.08.23G

03.08.24G

03.08.33G

03.08.36G

03.08.34G

03.08.37G

03.08.35G

03.08.29G

03.08.30G

03.08

Rotary Screens

Fixed and mobile automatic Racking

Revolving Racking

03.08.32G

03.08.31G

Bar Screens


Heating, Venting & Air Conditioning

(HVAC)

Air Handlers

Unit Ventilators & Fan Coil

Chillers

Heat Pumps

Various Components

Heat recovery ventilation (HRV)

Humidifier

Blower & Fan

Others

Self Contained Units

03.06.06G

03.06.07G

03.06.08G

03.06.09G

03.06.02G

03.06.03G

03.06.04G

03.06.05G

03.06.01G

03.06

Skid-mounted packages

Manufacturing of Skid-mounted

Pumping SystemDosing

Systems

Well TestingSkids

Production Manifold skid-

mounted

High-integrity pressure protection

system (HIPPS)

Accumulator Skids

Auxiliary Skid Unit

For Crude Oil

Metering skid Unit

For Gas

Gas Pressure Regulating Systems

Fuel Gas Treatment Skids

03.09.01G 03.09.07G

03.09.02G

03.09.11G

03.09.10G

03.09.09G

03.09.14G

03.09.03G

03.09.15G

03.09.04G

03.09.12G

03.09

Pig Launchers and Receivers

03.09.13G

Sub –Packages

Lube Oil Systems

Wellhead Control Panels

Power Packs

Compressed Air Systems

Bundles of Cylinders

Hydraulic Cylinders

03.09.16G

03.09.18G

03.09.17G

03.09.19G

03.09.20G

03.09.21G

Manufacturing of Skid-mounted

Compressors System

03.09.08G

Instrument Air Package

03.09.05G

Diesel Generator Package

03.09.06G

Packages (2/2)

Refrigeration

Handling Systems

Electro-mechanical Extractors

Electromagnetic Extractors

Apron Weighing Extractors

Scales

Weighing Bridges

Belt Weighing Systems

Batching and Feeding Systems

Handling / Dosing for Additives and Others (PE, PP, ...)

Package Unit of Sampling

Weighing and Production Control

Belt Weighing Extractors

PaddleExtractor

Continuous Mixing

Batch Mixing

Vacuum Mixer

Mixing Equipment

04.01.02G

04.01.03G

04.01.04G

04.01.05G

04.01.06G

04.01.07G

04.01.08G

04.01.09G

04.01.10G

04.01.11G

04.01.12G

04.01.13G

04.01.01G

04.01

Crushing and Grinding

Impact Crushers

Roller Crushers

Hummer Crushers

Other Crushers and Grinders

Crushers Mills

Grinding Mills (SAG, rod, ball, …)

Vertical Roller Mills

Horizontal Roller Mills

Vertical Roller Pre-Grinders

(CKP, …)

Roller Presses

04.07.01G

04.07.02G

04.07.03G

04.07.04G 04.07.08G

04.07.07G

04.07.06G

04.07.05G

04.07.09G

04.07

Equipment and Systems for

Spinning Line

Melt Spinning

Solvent Spinning

SpinningProcess

Dry Solvent Spinning

Wet Solvent Spinning

Reaction Spinning

Drawing

Washing Modules

Lubrication

Crimpling & Recrimpling

Post-Spinning Processes

Drying

Cutting

Balling

Various Equipment

04.06.01G

04.06.02G

04.06.03G

04.06.04G

04.06.05G

04.06.06G

04.06.07G

04.06.08G

04.06.09G

04.06.10G

04.06.11G

04.06.12G

04.06


Packing

Oil Canning and Packing Units

Bitumen and Other Canning and Packing Units

Bagging, Palletizing and Packing

Fertilizers and others

BaggingMachine

BagsBreakers

PackingMachine

PallettizingMachine

Wrapping Machine

Strapping Machine

Containers Making Systems

Filling Lines for Drum, Cans and

Bottles

Gas Cylinder Conditioning, Filling Lines

04.05.01G

04.05.02G

04.05.03G

04.05.04G

04.05.05G

04.05.06G

04.05.07G

04.05.08G

04.05.09G

04.05.10G

04.05.11G

04.05.12G

04.05

Package Unit -Drum Heating By

Steam

Package Unit for Plastic Drums Manufacturing

Package Unit for Steel Drum

Manufacturing

For Drums

04.04.13G

04.04.14G

04.04.15G

Package Unit for Wax Moulding

Calcination Process

Package Unit of Sinterizing

Package Unit of Briquetting

Extrude and Pelletizing Equipment

Package System for Crystallization and

Concentration

Package System of Coke Slurry

Transformation and Finishing

Packages

Package System of Polymer Finishing

(Dewatering, Drying and Packing)

Package Unit of Plastic Film Extruding

and Forming

Package Unit for Screening and

Regeneration (Catalysts And Others)

04.04.06G

04.04.05G

04.04.04G

04.04.03G

04.04.02G

04.04.01G

04.04.07G

04.04.08G

04.04.09G

04.04.10G

04.04

Solidification

Package System of Granulation

Package System of Pastilles &

Flakes Forming

Powder Processing Equipment

Powder Drying (PVC and Others)

For Milling Powders (PVC and Similar)

Package Unit of Micronization and Powder Handling

04.04.11G

04.04.12G

04.04.13G

04.04.14G

04.04.15G

Liquids Handling and Refueling

Systems

Onshore Refueling Systems

Fuel Filling Systems - Land

Car Cleaning Station

Onshore Loading Booms

Loading Arms -Land

(Mechanical)

Onshore

04.03.01G

04.03.02G

04.03.03G

04.03.04G

04.03.05G

04.03

Offshore

Refueling System for Helicopters used on

Platforms

MarineLoading Arms

Multipurpose Towers for Platforms and

Gangways

04.03.06G

04.03.07G

04.03.08G

Stockpile equipment and

dispatching

Truck and Wagon Loaders

Ship Loaders and Unloaders

Reclaimers

Telescopic Chutes

Conveyors

Belt and Pipe Conveyors

Roller Conveyors

Screw Conveyors

Vibrating, Oscillating and Air Cushion

Conveyors

Steel-band, Push-bar and Apron

Conveyors

Chain and Reddler

Conveyors

Catalyst Handling Systems

Bucket and Screw Elevators

Pneumatic and Gravity Handling

Pneumatic Conveying Systems

Bin Activators (Extractor Under

Silos)

Rotary Vales, Vane Feeders, Feed Hoppers and

Diverter Valves

Pan Conveyors

Solids Handling

Elevators for Passengers and

Goods

Forklifts

Automatic Storing Systems

Front / Pay Loaders

Heavy Lifting

Hydraulic Gantry Cranes

Skidding System

Strand Jacks

Flat Jacks

Hydraulic Jacks

Others

Airport Equipment

Baggage Handling Systems

Airport Handling Equipment

04.02.01G

04.02.02G

04.02.04G

04.02.03G

04.02.05G

04.02.06G

04.02.07G

04.02.08G

04.02.09G

04.02.10G

04.02.11G

04.02.12G

04.02.21G

04.02.22G

04.02.23G

04.02.15G

04.02.16G

04.02.18G

04.02.17G

04.02.35G

04.02.34G

04.02.28G

04.02.29G

04.02.30G

04.02.31G

04.02.32G

04.02.33G

04.02

Rack and pinion

Traction

04.02.13G

04.02.14G

WagonsHaulage

Stackers

04.02.19G

04.02.20G

Bridge Cranes

Portal / Gantry Cranes

Other Cranes

Hoists and Cranes

04.02.25G

04.02.26G

04.02.27G

Hoists

04.02.24G

Mainly non-Oil&Gas

Oil&Gas

18

Agenda

What is a Package

Market


Sustainability

Proposed actions

19

The global market for Packages is ~8.5B EUR(~10% of procured value for Oil&Gas plants)

0

20

40

60

80

100%

Process Packages 1.7B

HVAC 0.3BRefrigeration 0.3B

Process Filters 0.5B

Filters, Screens and Separators 0.2B

Water Treatment 2.7B

Storage Tanks 0.6B

6.4B

Handling Systems 2.1B

2.1B Total = 8.5B

Global market for Oil&Gas Packages, end users perspective (2014, B EUR)

Silos, Cylinders and Spheres 0.1BOther Various Packages 0.1B

Source: SupplHi analysis based on interviews with EPC Contractors

20

End-users’ universe is enlarging: more opportunities

IOCs / large NOCs

Medium/ small NOCs

Indepen-dents

“Clients are changing. The new ones have less requirements and more flexibility in accepting our standards on Packages, reaching Manufacturers’ standards.”

“Aramco or Shell have complex standards that must be strictly respected, also on Packages.”

ILLUSTRATIVECo

mpl

exity

/ ri

gidi

ty in

spe

cs

+

-

21

End-Users and Contractors are “forced” to collaborate with Packagers

NEED LEVER

• Accelerate the conclusion of the Engineering of the Packages, to order to deliver better and earlier

MANAGE RISKS

• Mitigate risks with closer interactions• Share / transfer risk to Packagers (also

through Terms & Conditions)– They represent a cost and EPC

Contractors are willing to pay for that

REDUCE COSTS

SHORTER DELIVERY TIMES

• Players to “buy directly key equipment, for 3rd parties execution”• Leverage on Packagers’ knowledge

22

EPC Contractors leverage on packagers’ know-how and forfeited some competences

“Packages always existed and we don’t have perception of an increase in utilization over the last years. But this is mainly due to the current competition in the industry.

Being an EPC Contractor, the make solution is theoretically the best one, especially for large packages.”

Source: interviews with ANIMP members

“Packages started in the late ’80s from a saving perspective.

The idea was also to transfer some risks and leverage on the focused know-how of suppliers.

But our legal and managerial side is not yet aligned to needs: bringing to the extreme, the same person that purchases a pump follows the day after a 15 million euro purchase”

23

Major trends are creating long term opportunities for Packagers

BROWNFIELD

LOCAL CONTENT

NEW REGULATIONS

MODULARIZATION

24

Continuous trend for modularizationHIGHER

ACCESSIBILITY TO REMOTE OR CRITICAL

GEOGRAPHIES

MODULARIZATION

PACKAGESCANADA

IRAQ

OFFSHORE

MODULARIZATION

“Modularization is basically a package brought to the extreme.”

25

Regulations typically create a disruption in the supply chain

Flaring

S-ECA

• Zero Routine Flaring by 2030: endorsed by 9 Countries and 10 Oil Co.’s (>40% of global gas flaring)

• Some companies are anticipating results (e.g. eni in Nigeria, setting a strong reduction already by 2017)

• Since 1/2015, all vessels in the Emission Controlled Area (ECA) of the Baltic Sea, North Sea, English Channel and waters 200 nautical miles from the coast of US and Canada, have had toreduce their sulphur emissions to 0.1% m/m

• ECA area may be extended to new geographies


Zero discharge

• Advanced wastewater treatment technologies to purify and recycle virtually all of the wastewater produced, with no discharge of any kind of pollutants into the environment

26

Possible new ECAECA area may be extendedto new geographies

Current ECA

Current sulfur limits:• ECA: 0.10% m/m• Other sea areas:

3.50% m/m (0.50% after 2020)

ECA AREA

Source: ExxonMobil

27

Russia is currently the #1 country for flaringemissions, followed by Nigeria

Asia

Austral-Asia

MiddleEast

WestAfrica

Caspian Sea

NorthSea

Venezuela,Colombia &Trinidad

SouthAmerica

Gulf ofMexico

Black Sea

East Africa(Yemen)

Red Sea

3,5 MTPA

Source: World Bank

FLARING EMISSIONS BY COUNTRY

28

Packages are typically related to technology cycles …

Time

MATURITYINTRODUCTION DECLINEGROWTH

CARBON DIOXIDE AND CARBON MONOXIDE

DELAYED COKER UNITS (DCU)

LNGMARINE

WATER TREATMENT

LNG

ILLUSTRATIVE

HYDROGEN

POLYETHYLENEPOLYPROPYLENE LPG LDPE

OXYGEN


SULPHUR

29

… and some Packages’ application will require higher focus over the next years

INCREASED FOCUSWATER

TREATMENTLNG MARINE FLARING

SYSTEMS


NOT EXHAUSTIVE

“NICHE MARKET”

EPDMDCU

…

+ BROWNFIELD AND REVAMPING PROJECTS ARE OPPORTUNITIES ALSO FOR SMALLER PACKAGERS

30

Some types of Packages will be always needed

“EVERGREENS” (present in all types of plants)

AIR DRYERS

DOSING SYSTEMS

FILTERS DESALTERS

NOT EXHAUSTIVE


31

Systems integration can be delivered only by large players, uncommon in Italy

•Trend of systems integration by large players able to deliver multiple, large and integrated packages, with a cross-industry perspective (Oil&Gas, Power, Shipbuilding, …)–leveraging also on technological

and process competences andinternational commercial presence

–increasing their bargaining power toward Clients as well as packagers and sub-packagers


COMPLEX PRODUCTS

SYSTEM INTEGRATOR

32

Agenda

What is a Package

Market


Sustainability

Proposed actions

33

Photography of the Italian Packagersvalue chain, 2015

~50% of companies with <10 Mln EUR revenues

80%export

Avg EBITDA margin ~9%>5000 employers

1.6 Bln EUR revenues

~170 companies

Source: SupplHi analysis, OneSource

34

Packagers mainly located in northern Italy (Lombardia and Emilia Romagna)

Lombardia

Emilia RomagnaVenetoPiemonte

84

2496

Marche 6Toscana 5Liguria 5Lazio 4Other 21

164

# of suppliers, by HQ Region

Total

54%

15%6%4%4%3%3%3%

10%

100%

35

The supply chain for Packages is highly interconnected …

END-USER

EPC CONTRACTOR

SUB-EPC FOR PACKAGE

PACKAGER

COMPONENTS OF A PACKAGE

SUB-PACKAGER

WORKSHOP / PACKAGER


ILLUSTRATIVE

36

… and became too long

“This long chain has a strong impact on schedule are requires escalation and creates delays for decision making.It also fragments competences across the value chain.Profit margins are also spread around.”

“Presence of Sub-EPC for Packages that typically add limited value to the picture and create further complexities.”


“In such a long chain Technical Standards sum upand become very complex to assess.”

37

Examples of Italian Packagers

Note: includes international companies with Engineering and manufacturing activities in Italy

ILLUSTRATIVE NOT EXHAUSTIVE

38

Increase in the number of small Italian Packagers together with lack of specialization

“The new Packagers come from 3 different extractions: Former suppliers of large

packagers that delocalized this part of the value chain in low cost countries

Engineering companies willing to expand their scope of work

Small companies not willing to grow in order to keep labour flexibility.”

“Every week a new Italian Packager is knocking at our door and we are not able to fully understand its capabilities.”

“The new Packagers that we are meeting are small companies that were the terminal part of a much longer value chain.”


39

~50% of companies with <10 Million EUR revenues suffered of reduced revenues


2011

0.3

0.9

0.5

1.6

2012

0.3

0.8

0.5

1.6

2013

0.3

0.8

0.5

1.6

VALUE OF PRODUCTION, BILLION EUR

+11%

-6%

-9%

-2%

# PLAYERS

Large (>50 M EUR)

Medium (>10 and >50 M EUR)

Small (<10 M EUR)

% VARIATION 2011-2013

40

The value of production of Packagers is on a roller-coaster% VARIATION 2011-2013

OF THE VALUE OF PRODUCTION

+50%

+20%

0%

-20%

-50%

+100%

# OF COMPANIES


~45%

~30%

~25%

41

Packages are a stronghold of the Italian plant manufacturing Value Chain

Full spectrum of packages for

competitive export

Packages mainly for the local market

Various packages,

mainly for the local value chain (not

competitive at global level)

Focused on handling systems

Some focus on process filters

Focus on process filters,

water treatment and hydraulics

Mainly for the naval business

Middle East with limited number of players and basic skills to satisfy Local Content

requirements

Limited competences to satisfy Local Content requirements, lack of

global competitiveness

Source: SupplHi, interviews with ANIMP members

ILLUSTRATIVE

42

Foreign Packagers do not possess the same level of execution flexibility

“Once the quality requirements increase, the total cost of supplying a Package from a Chinese tends to be equal to the Italian, considering for example Expediting and Inspectioncosts.”


“.”

“Foreigner Packagers have a lot less than Italians and lack first-class execution capabilities and flexibility”

Working with foreign players highlights the same issues. However, other value chains abroad are growing on Packages”

43

Agenda

What is a Package

Market


Sustainability

Proposed actions

44

Packagers growth is a based on a pyramid of competences

+Value of the supply-

Small / Medium Space




LiftingLiftingLiftingLifting

Assembly, Weld. & Quality




MachiningMachiningMachining

Quality / Full NDT

Quality / Full NDT

Painting

DEVELOPMENT ACCELERATORS

Package Module

Very Large Space

Large Space

Large Space

Large Space

Very Heavy LiftingHeavy LiftingHeavy LiftingHeavy Lifting





Large MachiningLarge MachiningLarge MachiningLarge Machining

Quality / Full NDT

Quality / Full NDT

Quality / Full NDT

Quality / Full NDT

PaintingPaintingPaintingPainting

Large Engineering

Medium Engineering

Medium Engineering

Small Engineering

Large Sales Proposal teamSales team

Sales teamSales team

Power for testing

Power for testing

Power for testing

Electrical Installation




Instrum. Engineering

Instrum. Engineering

Project Manager

Project Manager

Project Manager

Project Manager

Sub-package

ILLUSTRATIVE

45

Packages go through the typical life cycle, with ~10 M EUR as the critical threshold

REVENUES

Time

MATURITYINTRODUC-TION

GROWTH OR DECLINEGROWTH

0-5 M EUR

5-10 M EUR

>10 M EUR

Replicability needed across

multiple packages

ILLUSTRATIVE

46

Typical causes of distress of Packagers

EXAMPLE


Packager of analyzers shelters, wellhead control units and skids

Packager mainly focused on skid-mounted machines (e.g. Compressors, …)

Traditional packagers

CAUSES

Packager of skid-mounted machines

• The increase in quality (and consequently costs) wasn’t recognized by the market

• Complex financial sustainability

• Not meeting required performance of the package

• Complex owner’s succession plan in a family business

• Too dependent on a single main customer, which absorbed almost full capacity

• Lack of internationalization

47

What are the competences required to deliver a Package?

FabricationProcurement

and Post Order

R&DCommercial

(Sales, Marketing, Proposals)

Engineering

Business Development and Strategy

Aftersale

services

Project Management

Quality and HSE

General Services and other support functionsLogisticsFinancing

Legal (T&C, TM protection, Claims, …)

1

3 4 5 6 7 8

2

9

10

11

48

Business Development and Strategy1

• Italian Packagers are SME / family companies usually too small, lacking of critical mass

• Italian Packagers do not have a clear strategic direction and a growth path


“We totally lack of medium / long term planning. We are a family business and all our investments are operative and not strategic.”“We would like to find the right product but we don’t have idea of where to focus on.”“With 10/15 M EUR of revenues, Packagers are looking for contracts of similar size, or even larger.”

49

Project Management2


“Very small family-owned companies have some leadership, but small to medium companies lack of PM culture.”“I was attending a Project Management course at ANIMP and some Packagers close to me were 1 step behind, missing some basics.”

• Italian Packagerssometimes lack of a fully empowered and endorsed Project Manager–EPC Contractors

highlight the frequent lack of knowledge of basic PM tools

50

Research & Development3

• Packages are typically not patented and rarely use proprietary technologies

• The majority have no specialization and do not focus on technologies

• Possibility to trade mark the “Utility model”


“Specialization in Packages is strongly preferable because it implies expertise, higher levels of professionalism, as well as long-term success.”“Packagers are typically worried about filling their production capacity and do not care about developing specific technologies.”

51

Commercial (Sales, Marketing, Proposals)

• Supplier scouting is complex and takes time and resources–Lack of tools to find

and pre-qualify Packagers

• Packager are not always qualified with key End-Users

• Sales are not connected to Execution

4


“We would like to use a common vendor database (“albo”) of Packagers that highlights their capabilities based on an agreed set of competences”“There is a quick turnover of salesforce and Technicians are not aligned with younger salesforce.”

52

Engineering

• Specifications are not always understood in full

• Client arena is changing and has more flexibilityin accepting new standards for Packages (e.g. “not all clients are like Aramco or Shell”)

• Technical standardization is required to reduce costs

5


“Our packagers don’t digest the specifications: they typically say lots of yes, without understating all the terms and conditions and specs and that’s when issues will arise.”“Technical standardization is required to reduce complexity and costs but needs to be driven by Packagers.”

53

Procurement and Post Order

• Procurement and Post Order (Expediting and Inspection) are delivered with random performance

• EPC Contractors find complex the handling of warranties in case of semi-finished goods surrendered to the Packager

6


“Packagers are sometimes not able to buy due to low bargaining power toward large vendors of key machineries, and require support from the EPC Contractor.”“It’s very complex for a packager to manage a warranty claim if something goes wrong, given the low bargaining power toward larger vendors.”

54

Fabrication7


“We can improve our Packagers value chain reducing the length of the value chain, getting closer to EPC Contractors and End-user needs”“Larger players should Investigate local fabrication in countries with high Local Content requirements (e.g. Saudi Arabia, Kazakhstan, …) through local Partner ”

• Fabrication is one of the main strengths of the value chain, but typically is sub-contracted to smaller fabricators

• It is the result of the contribution of many companies and players, in a very long value chain

55

After-sales services8


• After-sales is typically done by the OEM and it is a pass-through–easy for a Packager

to not assess properly the after sale rate of an OEM and submit a wrong bid

• Complex to deliver by SMEs

“We have an increasing need of assessing After-sales capabilities of Package suppliers: this is due to the presence of new smaller clients that are also the operators and want to reduce their full TCO.”“Large Packagers have stronger competences on After-sales, but SME are sometimes not even able to manage the documentation”

56

Quality

• Business Process and Quality procedures areminimum requirements

• Quality requires competence and presidium, but it is not always the case

9


“We always need to show a real Business Process and Quality procedures.”“Quality is a must and a value. It requires shared belief and focus of the entire organization, not just the Top Management, and continuous investments.”

57

Legal10

• Not all Packagers are able to manage liabilities and this is “boomerang” for a Contractor

• Claim is frequent but the style is not always professional and supported by adequate documentation


“T&C are every day more demanding and we registered an escalation over the last 3 years. They are reaching unlimited responsibility that are complex to accept as a Packager. That generates complex internal decisions.”“T&C represent a cost and EPC Contractor are willing to pay for that. T&C are always similar but experiences are not shared.”

58

Financing11

• Typically managed on a project-by-project basis, leveraging on the single contract

• Financing toward banks is complex and can impact execution


“The lack of money to purchase goods and services can have a terrible impact on the schedule of a project.”

“Some Packagers are under-capitalized and this is an obstacle to bank guarantees.”

59

Agenda

What is a Package

Market


Sustainability

Proposed actions

60

What we have heard during the interviews

25 potential

Value Chain

actions

61Source: interviews with ANIMP members

25 potential Value Chain actionsBusiness

Development and Strategy

ProjectManagement R&D Commercial Engineering Procurement

and Post Order

Quality and HSE Legal Financing

1 2 3 4 5 6

Fabrication After-salesservices

7 8 9 10 11

• Shared market analysis, ad-hoc for packagers

• Information sharing on Corporate tools

• Support the creation of a Clusterof Italian Packagers driven by leaders

• Join forces, as a Consortium of small complementary packagers

• ANIMP Project Management courses to strengthen these critical skills, with dedicated focus for Packagers

• Development of PM culture and skills through the support of retired Managers

• Further investigate the possibility to leverage on the “Utility model” for Packagers

• Shared R&D investments among Packagers

• Use an online platform to get prequalification visibility

• Shared marketing effort with leading End-Users

• Define the rules of engagement for a Packager with EPC Contractors

• Support Co-Engineering with EPC Contractors

• Share knowledge of main End-user specs, creating a network of Experts

• EPC Contractors and vendors to co-engineer the solution

• Set shared standards for selected types of Packages

• Procurement via Frame Agreement of non-critical items

• Reduce the length of the value chain, getting closer to EPC Contractors and End-user needs

• Investigate local fabrication in countries with high Local Contentrequirements

• Stimulate Continuous improvement and investment, also supported by external Experts

• Design and deliver a “certificate of Italian quality” to the value chain

• Share experience among Packagers on Terms & Conditions

• Investigate if Banks and insurance Co. are willing to support the Packages’ value chain in managing complex T&C through umbrella contracts

• Engage primary financial institutions to setup / extend a “value chain program“ dedicated to Packages

1a

1b

1c

1d

2a 3a 4a 5a

3b4b 5b

5c

6a

7a 8a 9a 10a

11a

10b

2b

• Build After-sales competences: allocate dedicated resources, manage effectively the documentation

• Promote after-sale capabilities with End-Users

4c

4d

7b

8b

9b

62

LONG term

M&A based oncomplementarity

• Process Integration• Build of Owner Succession

Plan• Enlarge Manufacturing

capability• Financial sustainability

MEDIUM term

After-sales organization

Local presence (commercial, after-sale, manufacturing, …)

Modularization

• Extend market coverage• Extend stable organization• Create competitive

advantage

Opportunities for Packagers start today~6 months

SHORT term

Visibility

Business Plan

Competences

Standardization

Rules of engagement

• Get strategic direction• Improve processes• Complement expertise (PM +

Expert) • Obtain visibility (what and how)• Assure financial stability

~1-2 years >2 years

63

CONTACTS

Giacomo FranchiniDirector

[email protected]

+39 348 9201904

Tullio BuonocoreBusiness Development Consultant

[email protected]

+39 335 470775

www.supplhi.com

64

Grazie per la cortese attenzione

21° Convegno Sezione Componentistica ANIMP 24 novembre 2015

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