bartels e seizing the opportunities of the crisis
Post on 01-Mar-2018
220 Views
Preview:
TRANSCRIPT
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 1/11
Seizing the
opportunities ofthe crisis
Dr. Eric Bartels –
Chemical PracticeMcKinsey & Co.
Berlin March 5, 2009
This report is solely for the use of EuPIA participants. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without priorwritten approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
Presentation to the EuPIA
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 2/11
1
Perspectives on the global economic crisis for chemical companies
A
B
C
Perspectives on the crisis, uncertain-ties, and emerging scenarios
How winners emerge post-crisis
Key levers for you to chart your winning course through the crisis
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 3/11
2
• We are now almost 5 months into a sharply deteriorating globalcredit, capital and economic crisis that is different from any ofthe previous recessions of the post-WWII era
• Most companies have taken appropriate initial actions, including: –Shore up financials (i.e., liquidity, balance sheet) –Cut discretionary spending (e.g., Christmas party) –Scale back on initiatives predicated on continuing global growth
–Scan for potential new risk exposures (e.g., forex, commodities) –Freeze new hires in non-essential positions
• However, none of these actions are sufficient if we have enteredinto a multi-year economic slowdown
• The question is, given all the uncertainty, what should a companydo next?
What should a company do beyond initial actions? A
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 4/113
* Does not include debt issued by federal, state and local governments, borrowing by financial institutions, or commercial paper
** Includes multifamily residential and farm mortgages
*** Excluding debt issued by banks and broker-dealers; losses on unsecured debt issued by Lehman Brothers and WaMu are estimated to be $130-140B
$ Billions
U.S.-originateddebt*
Credit cards
Auto loans
Other revolving
Other nonrevolving
Total
outstanding(Q2 2008)
U.S.consumercredit
U.S.commercial& corporatecredit
Total
840
770
130830
590
24,060
High-yield bonds
Leveraged loansInvestment-grade bonds***
All other loans
690
3,140
2,470
Estimated
cumulativelosses (2008-13)
1,370-3,120
100-220
11,300 660-1280
2,570
6,890
6-13%
13-29%
6-11%U.S. realestate
Share ofoutstanding
3,300 170-430 5-13%
290-660 12-26%
240-750 3-11%
70-170
90-240
12-29%
13-35%
100-270 12-32%
20-40 15-31%70-130 8-16%
40-170 1-5%
40-170 2-7%
Commercial**
Residential
14,600 830-1710 6-12%
We probably haven’t seen the worst yet: Estimated futurelosses range from $1.4 - $3.1 tri llion
A
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 5/114
A What makes this crisis, and the resulting US recession,different from past recessions?
What makes this recession different?
• Breakdown in capital markets in September
• Transmitted through the global capital markets to the worldeconomy
• Hitting US and Europe after an unprecedented borrowing spree
• Hitting all "export-to-US" dependent economies
• Global credit/capital market mechanisms remain broken
What are the uncertaint ies that we face?
• Macroeconomic – duration and depth of recession?
•Capital markets – can they be fixed?
• Government intervention – what will they do and can this becoordinated?
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 6/115
Revenue growth profiles under four scenarios
Scenario 2:Battered, butresilientProlongedrecession for 2 to4 years
Very severe
globalrecession
Severe
globalrecession
Scenario 1:Quick fixQuick, butunsustainableUS recovery inlate 2009
Scenario 4:Long “freeze”Recession lasts
for more thanfive years“Japan-style”
Scenario 3: StalledGlobalization-Resurgence of
NationalEconomiesModerate recessionof one to two yearsfollowed by sloweconomic growth
Global credit and capital marketsclose down and remain volatile
Global credit and capital markets
reopen and recover
A
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 7/116
CHEMICALS' CONSUMPTION* (SALES USD BASIS) BY END-USE
Note: Excludes pharma. Chemicals used to make intermediates allocated to downstream uses based on mix of non-ag downstream use by product type* Consumption includes chemicals embedded in – or used to make – imported goods
Source:Probe Economics, Cefic, McKinsey analysis
End-use segmentsGlobal sharePercent Demand sensitivity to downturn/rationale
Construction 18 Major housing oversupply
Automotive 14 High uncertainty about companyviability; limited budgets
Computers and telecom 6 Somewhat discretionary
Household and office – major appliances,equipment, furniture
4 Somewhat discretionary
Household and office – consumables, packaging
12 Swings with general commerce
Industrial goods andservices
10 Swings with general commerce
Consumer services 16 Some components discretionary;
some unlikely to see declines
Textiles and clothing 6 Shift to lower price goods but smallportion of volume is discretionary
Agriculture 8 Limited decline (less than expectedgrowth due to diet change, biofuels)
Food processing anddistribution
6 No decline likely
ROUGH ESTIMATES
Chemical end-use sectors vary in their exposure to thedownturn in demand
A
Our scenario modelsproject chemical demand
to decline by 6% to 12%versus the historical trend
until 2010
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 8/117
* Companies classified as "winners" or "challengers" on the basis of average EV/IC for pre-recession (1997-99) and post-recession (2004-05):Top quartile companies considered as "winners", the remainder as "challengers"
Source: McKinsey analysis, CPAT database
49
51
Winners(25%)
13
87
Challengers(75%)
Winners
Challen-
gers
Post-recession
Pre-recession
Only 49% of pre-
recession winners*
retain their leadershipposition
Key driver:
Fast, proactive,
flexible cost &cash mgt.
13% of challengers*
are able to gain
leadership position –
Distribution of companiesPercent
Key driver:
Fast, proactive,
flexible cost &
cash mgt. PLUS
smart M&A
strategy
Recessions lead to a significant reshuffl ing of industry leadersB
McKinsey studyof 4,020
companiesworldwide in 78industry sectors
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 9/118
• Successful winners – tend to maintain lower CAPEX compared to unsuccessful peers,
who maintain high CAPEX too long into recession – have considerably lower CAPEX in absolute figures during
the recession• Successful challengers – tend to maintain CAPEX on comparable level as peers, while
lowering it in absolute numbers during recession – They accelerate CAPEX growth only early post recession
Investment strategy
• Make strategic moves that leverage relative advantages vs.Peers/build exposure to growth geographies/build market-share
• Drive commercial and operational levers that support costleadership and preserve liquidity. For costs – Improve working capital efficiency (particularly inventory and
receivables turnover) – Maintain flexible workforce and adjust headcount as needed – Be able to flexibly cut overhead costs if necessary
Operating efficiency
Source: McKinsey
Previous recessions show us that successful companies sharecommon strategies in tough t imes (1/2)
B
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 10/119
• Adjust performance measures towards cash, capital and liquidityindicator; non-financial health indicators
• Seek to reshape company operational risk profile e.g. stabilizesupplier base, monitor customer liquidity, operational risk• Keep debt levels below peers before and during recession to be
able to finance opportunistic moves
Financial manage-ment and flexibility
Acquisition strategy
• Divest non-core high-performing assets with limitedgrowth/improvement potential/a better natural owner early
• If financial flexibility is there, acquire businesses from distressedsellers to build exposure to growth geographies/build market-sharelater in the cycle
• Successful challengers did more acquisitions than competitors
Source: McKinsey
Previous recessions show us that successful companies sharecommon strategies in tough times (2/2)
B
7/26/2019 BARTELS E Seizing the Opportunities of the Crisis
http://slidepdf.com/reader/full/bartels-e-seizing-the-opportunities-of-the-crisis 11/1110
Shape up yourfinancials
Ring the till –immediate cashflow and P&Limpact 2009
Institutionalizeperformanceimprovements for2010+
Orchestratestrategic moves forgreater strengthpost-crisis
• Cash war rooms
– Inventories
– A/R, A/P
– Capex reviews
• Optimize financialsetup
• Build compellingcredit story
• Sourcing quick wins(e.g. repricing)
• M&S adjustments(pricing, incentives,..)
• Utilization mgmt inproduction
• R&D to boostproduct margins
• Reduce G&Aexpenses
• Build uniqueMarketing and Salescapabilities
• Pursue excellence inProduction
• Stimulate innovationperformance
• Lift the organizationto a new perfor-
mance level
• Seize attractivegrowth opportunitiese.g. through M&A
• Refocus businessportfolio and strategicdirection
• Develop new winningstrategies
Short-term survival Make use of crisis for performance boost
Key levers for you to chart your winningcourse through the crisis
C ANIMATION TO BE DONE!
top related