value creation for rapid response and · most mro materials are not on-contract, with ranging...

Value creation for rapid response and long-term resilience in retail fuels

April 2020

© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2

The current environment has created

uncertainties in fuel demand, while

creating opportunities to capture higher

demand in the convenience market. As a

result retail fuel companies have a

tremendous opportunity capitalize on a

surge in higher margin sales and position

for future growth.

Demand shocks: Retail fuel consumption

has been adversely impacted due to

global reductions in travel resulting from

regulatory mandates to slow the

proliferation of the COVID-19 virus; indeed

some measures indicate gas station visits

are down 70-80%(1) in some regions over

this time last year.

Demand shifts: With people working from

home, restaurants closing or offering

reduced services, and the desire to stay

away from crowds, demand for groceries

and every day convenience items has

increased but customers are looking at

alternatives to acquire these goods and

services; i.e. delivery, curbside pickup etc.

Reduced cash flow: In this environment

customers may delay purchases or

payments for longer than usual. This

causes a chain reaction of delayed

payments which typically slows down all

aspects of business

Capex collapse: Central banks primed

the economic pumps by cutting interest

rates and adopting other stimulus

measures as yet another indication that

recession fears are growing

Market environment Structured response elements

In the current market environment, we believe retail fuel corporations would benefit from a

more aggressive look at their business to identify exposure to potential economic risk and

proactively identify opportunities for rapid cost structure realignment, cash flow

optimization and capex prioritization. At the same time leading organizations are moving

from stabilization to building resilience and positioning for growth. In each case, an

analytics led approach is key to unlocking new insight. KPMG LLP offers a rapid 3-5 week

assessment across the cash-cost-customer-capital dimension to find solutions to help

companies manage through demand volatility and position for the next wave of growth.

Develop / re-visit store-level

profitability to determine

negative contribution

thresholds

Build potential closure

scenarios

Model actions across

geographies, working

capital and cost

containment

Scenario

planning &

management

Determine key risks and

prepare responses (working

capital inventory, alternate

suppliers, capex etc.)

Leverage CARES Act

Stimulus liquidity for

company owned and dealer

networks

Working

capital and

supply chain

Understand change to

potential demand patterns

based on segment outlook

Realign go-to-market and

customer support

organization to respond to

changes

Customer

centricity

Assess all expenses and

right-size to projected

revenue categories

Actively manage spend

going forward

Active

expense

management

Assess categories that play

well to the needs of the

COVID-19 environment

Adjust order sizes of

essential elements so

customers know it will be in

stock

Category

Management

Source: (1) SafeGraph, KPMG Analysis


affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms


KPMG framework for stabilization and value creation

Familiarity with, and knowledge of ‘the levers that matter’, having helped address

cost and performance improvement among numerous operators

A ‘deal-pace’ approach that works outside-in, with minimal disruption to

management at the outset as we look to shine a light on where value may lie

External perspectives on leading practice procedures to improve efficiency and

effectiveness

Tools and resources to take a data-driven and granular approach to identifying and

quantifying actionable opportunities using proven methods

At the heart of a turn-around is stabilization and value recovery. Our range of

capabilities allows us to provide a comprehensive solution.

We believe

we could

add value

across this

cycle by

bringing...

Lender advisory/refinancing

- Company behind plan

- Finance/Liquidity

concerns

- Business model

disruption

- Fraud

- Loss of management

- Reputational damage

- Regulatory change

- Failed M&A transaction

- Failed integration

- Customer/supply chain

stress



In the current market conditions KPMG’s data-driven approach to improving

performance for our clients can be quickly deployed to look at the 4 stress areas

and identify meaningful value levers for today and the long-term

CashAnalysis to determine the level of

liquidity and crisis cash needs, as

well as tactical working capital

actions (AR, AP, inventory),

CARES Act Provisions etc., that will

quickly optimize cash flow for the

business

CustomerDiagnostic to understand how

demand patterns will be

impacted by customer and end

market

Revenue analytics supported by

primary research for go-to-market

and operational changes

CostCategorization and triage of

discretionary expenses for cost

control/delay actions

Leverage revenue forecast

scenarios to develop organizational

cost models to support level of

activity (fixed, variable)

CapitalReview Capex plan to test for

alignment with medium & long-term

scenarios

Identify Capex reduction

opportunities to redirect based on

revised demand forecast

Data & analytics driven approach to the “4C’s”

KPMG framework to assess business impact, drive cash and contain cost

Financial, operational and

organizational transaction

level data pulled from multiple

systems across the business

regardless of data structure

External economic data to

augment internal company

data

Cash/liquidity

Cash forecasting

AR / AP triaging

Expense alignment

Discretionary

expense controls

Org rightsizing

scenarios

Customer risk

Fuel sales forecast

Customer type

analysis by location

Capital allocation

Alignment with new

price forecast

Flexibility in deploying

maintenance capex



Potential analyses

Aggregate / analyze store-level P&L to perform rapid opportunity assessment

Compare performance by station across key metrics including fuel margin, non-

fuel gross margin, non-fuel gross profit share and fuel volume

Develop internal benchmarks based on best demonstrated across stores in the

same market to identify performance improvement opportunities

Outcomes

Identification of specific cost reduction levers

Detailed analysis of financial and operational performance enabled by store-level P&L database

Sample analyses Potential analysis and outcomes based on past experience

Potential analyses

Fact based understanding through data and analytics to understand working

capital needs, excess or shortfall, and any practices causing performance gaps

Analysis of suppliers and invoices to understand opportunities to optimize timing of

cash outflows

AP/AR triage including supplier payment terms and contract management

Outcomes

Identification of specific adjustments to operations that can free up working capital

Deep dive analysis to release working capital while revising long-term practices

© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22

Out of Scope In Scope

An opportunity exists to generate a working capital benefit and improve the P2P process by improving payment accuracy and reducing early payments to suppliers

Analysis indicates a significant volume and value of early payments – although there is a large difference depending on the measure used

— Early payments identified are based on the “PayT” code that determines the number of days the payment should be made within. However, further analysis revealed that the payment

terms are manually adjusted in the system and reflected in Dy1 (difference between payment due date as scheduled by SAP and baseline date)

— Difference in early payments between PayT and Dy1 can be explained by a number of reasons that are captured in the following slide. Some of these can be impacted by the business,

while others are out of the direct control of the business unit and may require corporate approvals

Early payments bridge

Total early payments

recognised according to Day 1

measure amount to $22.4m

Total early payments based

amount to $152.1m

Analysis of third party spend to identify opportunities for reductions

Potential analyses

Vendor proliferation and tail analysis and analysis of off-contract spend

Contingent labor / contractor rate analysis to understand variance in labor rates

by regions

Analysis of vendor performance against agreed targets

Outcomes

Identification of opportunities to increase spend leverage, harmonization of

contingent labor spend across regions, and reduce overall costs


Among MRO materials, the majority of materials are not on-contract which is driving incremental costs and supplier risk

35%

14%

5%

Fast /

moderate

Slow

Non-moving

80%

80%

80%

% on Contract Expectation

$6.4

$1.5

$14.9

Fast /

moderate

$1.3

Slow

Non-moving

$7.9

$1.3

Off-ContractOn-contract

33%

30%

24%

9%3%

2%

OTHER

CAPITAL SPARES

MACHINERY

CRITICAL MODERATE

REPAIRABLES

CRITICAL FAST

47%

27%

19%

6%

0% CRITICAL SLOW

CAPITAL SPARES

OTHER

REPAIRABLES

MACHINERY

48%

35%

9%

Fast /

moderate

Slow

Non-moving

80%

80%

80%

Material IDs currently on contract, % of total Forecasted annual spend, $M1

Materials on contract vs. off contract

Most MRO materials are not on-contract, with ranging between

35% - 48% of fast / moderate movers and 7% – 11% slow /

non-movers. The [client] expectation for the percentage of

MRO materials purchased on-contract is 80% of all

fast/moderate movers and critical slow movers should be

purchased on-contract.

Forecasted material spend

Based on forecasted monthly consumption and unit

price, by material ID, we can assess the value of

goods purchased per annum.

Based on this, we can see that 78% of the total

material value is purchased off contract. Additionally,

the average off-contract price is 3.4x on-contract

unit prices.

Fast / moderate spend breakdown

Slow moving spend breakdown

Annual spend breakdown (select segments)

Breakdown of largest material control segments

Critical, slow-moving materials represent the largest

proportion of annual forecast spend among materials

expected to be on-contract, dominated by critical slow

materials. Average unit prices for off to on-contract are 7.2x

and 3.1x for fast / moderate and slow-moving, respectively,

indicating a higher percentage should be on-contract

among both categories.

Cri

tical

No

n-c

riti

cal $7.1

Fast /

moderate

$6.0

$10.7Slow

Non-moving

$1.3

$5.1

$10.1

Potential analyses

Sub-function and process level comparisons and benchmarking

Spans / layers and grade inflation analysis across the organization

Field office / location analysis to understand any potential consolidation

opportunities

Outcomes

Identification of opportunities to reduce headcount, optimize management

layers, and consolidate offices and operations for now and future growth

Benchmarking and optimization analysis of back-office support functions

Our experience allows us to bring in-going hypotheses that prioritize opportunities

for rapid response and stabilization while keeping an eye on long-term value

creation to help position the business to grow (either through M&A or organically) in

a post COVID-19 environment

Analysis of changes in customer shopping and cross-shopping trends

Potential analyses

Analysis of changing trends of retail gas station customers who visited a specific

retail location in the last four weeks compared with the previous 12 months

Define cross-shop for brands within each trade area to determine brand loyalty

Develop a view of the market and competitive landscape leveraging external

data sets such as Experian, SafeGraph and AggData

Outcomes

Identification of market trends and opportunities to drive improvement

Vendor concentration among impactable spend, $M

Impactable Vendor Spend ~ $475M

Total Vendors - 577

80% of vendor spend (~$378M) is dedicated to 25 Top Suppliers

20% of vendor spend (~$97M) is split between over 552 suppliers,

of which 28% are PNG based organizations

Rationalizing

vendors in bottom

20% provides est.

savings of 2%-

10% of spend from

these vendors

($1.9M to $9.7M

savings)


Operations

Maintenance

Wells

28%

Reservoir

Training

Geoscience

Surface

72%

Others

SSH&E

38%

Tax

Treasury

25%

IT

HR

Law

Commercial

Finance

76%

64%

13%

51%

18%

17%

46%

Due to the shifting life-stage of the asset a number of technical support functions present opportunities for right-sizing along with select back office groupsPercentage of FTEs above base benchmark out of total FTEs benchmarked (extent of change)

Not benchmarked due to data / materiality

No FTEs above base benchmark


Bu

sin

es

s

Lin

e

Fie

ld

Su

pp

ort

Se

rvic

e

Su

pp

ort



Spans of control analysis



Contact us for more information on how KPMG can help accelerate rapid organizational and financial assessments and develop cost containment plans

Olli Valikangas

Principal:

Energy Strategy and M&A

[email protected]

kpmg.com/socialmedia

The information contained herein is of a general nature and is not intended to address the circumstances of any

particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the

future. No one should act upon such information without appropriate professional advice after a thorough examination

of the particular situation.

© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All

rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Some or all of the services described herein may not be permissible

for KPMG audit clients and their affiliates or related entities.

Richard Metzner

Managing Director:


[email protected]

Issey Kato

Director:


[email protected]

mailto:[email protected]



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