Futureproof Strategies: Petrochemicals In Tomorrow’s World

Johan C. Aurik

Managing Partner & Chairman of the Board

A.T. Kearney

2

Dubai, November 2014

FutureProof StrategiesPetrochemicals in Tomorrow’s World

3

FutureProof – the challenge of strategy

• We live in a world of increasing change

– Increasing market volatility and shifts

– Fully global and dynamic environment

– Shifting consumer demand and innovation

• Strategic options are overwhelming

– No longer a back-office exercise

– Analysis overload

– Pace of change and disrupters can neutralize strategies

• Is a FutureProof Strategy Possible?

– Long-term payback on assets

– Navigate our global landscape

4

Increasingly we struggle with Strategy…it requires more effort and is becoming less effective

Source: A.T. Kearney CEO Study on Strategy, N=2010

62% 74%

More complex More time consuming

48%

Fail to truly deliver

5

As the world becomes more intertwined the global economy becomes more susceptible to crises

Source: The World Bank – Data, IMF, US Bureau of Economic, A.T. Kearney

More frequent boom/bust cycles(World GDP growth %, p.a.)

World GDP

What’s next?

Military

Conflict

Economic

Challenges

Global

Pandemic

Country

Disintegration

Technical

Breakthrough

Extremism Real estate

BubbleEnergy

1973-74Oil crisis

1980Latin Am. debt crisis

2000Dot-com bubble

1994 Economic crisis

in Mexico

1989-1991 US savings &

loan crisis

1979 Energy crisis

2001 September 11

100500959085807571

-2

-1

0

1

2

3

4

5

6

7

2008 Subprime

mortgage crisis

15

1997Asian financial

crisis

Renewable

Terrorism

2014Ebola

6

Strategic Direction of the Chemical Industry

EndConsumer

Chemical Customers

Chemicals Production

Feedstock

• Feedstock price

• New Sources

• Plant Investment

• Varying Feedstock

• New Capacity

• Protectionism

• Supply Chain

• Specialization

• Innovation

• Investment

• New Products

• Volatile Demand

• Consumer Activism

• Geographic Shifts

• Price / Value Transparency

• Access to Information

• Sustainability

• Global Trends

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What does it take to be successful in strategy today?

Simultaneous, predictable trends

Inclusive Strategies

Life-cycles of competitive advantages

+

+

Unpredictability of the Future

Competitive advantage is transient

Cascading Strategies

8

Mega trends

Three major trends impacting the future of chemical players

Source: A.T. Kearney

Major trends in chemicals (extract from A.T. Kearney chemicals vision 2030)

Technology & innovation

Consumption patterns

Regulation & activism

Globalization

Demographics

Natural resources & environment

Innovation & the competitivelandscape

Non-conventional feedstock & volatility

Regional growth and fragmented industries

1

2

3

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Feedstock volatility and new sources of production will continue to challenge Chemical Producers

• Short term production fluctuations

• Macro-economic uncertainty

• Speculation and decoupling of oil and gas prices

Oil resources and production costs

Source: International Energy Agency, U.S. Energy Information Administration, BP, Dow Jones, A.T. Kearney

Key drivers for feedstock price volatility

40

80

100

120

5,0004,0003,0002,0001,000

60

0 6,000 7,000 8,000 9,000

0

20

Target Price Range

Pro-

duced

Price 2000Conventional

oil in MENA

Other Conven-tional oil

Heavy

oil and

bitumen

Oil

shales

Gas-to-liquids

Coal-to-

liquids

Deepwater & ultra deepwater

CO

2-E

OR

Oth

er

EO

RA

rctic

USD / Barrel billion barrel

1 Non-Conventional Feedstock & Volatility

10

Industry’s center of gravity is shifting to CHIMEA

RoW

NAFTA

Europe

Asia

2025E

4,276

312

544

671

2,749

2010

2,353

173

455

578

1,147

2009

1,871

133

396

508

834

1985

480

48

144

216

72

?

2-3 Europe

2-3 Middle East

3-5 Asia

Top 10 chemical players (rank by turnover)

1-2 NAFTA

1985 2010 2025E

1 Bayer

2 BASF

3 Hoechst

4 ICI

5 Dow Chem.

6 DuPont

7 Ciba-Geigy

8 Montedison

9 Rhone-Poul.

10 Monsanto

BASF

Dow Chem.

ExxonMobil

Sinopec

SABIC

Ineos Group

Shell

DuPont

LyondellBasell

Total

Chemical market value(1985 – 2025E, € bn)

Source: CEFIC, Chemical Week, Verband Chemische Industrie, Chemical & Engineering News, annual reports, A.T. Kearney

2 Regional Growth & Fragmented Industries

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Automotive

Construction

Customers and business continue to shift to emerging markets and growth opportunities

9%8% 8%17%

25%

51%

2010

8%16%

26%

50%

2007 E2025

14%

22%

55%

E2014

21%

31%

40%

New players emerging in Fortune 500

27%

38%

E2014

18%

17%

29%

37%

2010

15%17%

31%

37%

2007

10%23%

33%

34%

E2025

21%

14%

Established

Emerging

2011

407

CAGR 19%

93

2007

451

49

2003

481

19

Source: Global Insight, IHS, JP Morgan, Fortune 500, A.T. Kearney

RowNorth AmericaEuropeAsia

2 Regional Growth & Fragmented Industries

12

What do chemical customers value …

Key buying criteria for clients over time Customers innovation vision

Source: C3X, A.T. Kearney

80%

60%

40%

0%

100%

Commercial sales support

Social sustainability

Supply chain services

Environmental sustainability

Technical sales support

Innovation

Spring 2011

Spring 2012

Delivery reliability

Price (per performance)

Product performance/ features

Spring 2009

Spring 2010

Fall 2008

Fall 2009

15%New special value-added,

Commercial services

New special value-addedLogistical services

29%

New business model 41%

New chemical products 71%

New product features 71%

New applications 74%

Perception of company as innovative leader

76%

New technologies 79%

3 Innovation & Competitive Landscape

Availability

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ConvenienceUse of specific coatings to “self-clean”

Anti-dirt composite

panels

Self cleaning car interior & exterior

Use of electric / magnetic technology to change color

Easy transform color and effects

on panelsChameleon car

Potential innovation platforms

Bringing the future in

Feedstock Chemicals …OEM Automotive

Consumers

Trendy

Low maintenance

Global trends

Well being & personalization

A more sustainable

planet

Use of metal hydride to reflect heat

Metal hydride systems for air

conditioning

Reduced emissions

Environ-mentally friendly

Source: A.T. Kearney

Formulations

“Future-In” and the full value chain

3 Innovation & Competitive Landscape

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Next Wave - New trends and disrupters

• Strength, Lightness & Flexibility• Conductivity• Heat resistant

Nano-Technology

3D Printing

Eco-Products

• Mass customization

• Prototype plus

• New production approach

• New meaning to inventory

3 Innovation & Competitive Landscape

• Competitive

• Pure bio-products

Matu

rity

Time

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What makes a strategy FutureProof?

1. Future In – Begin with future trends and the end customer (5+ years)

• What are the potential new pieces?

2. Organizational Inclusion – Build a strategy engaged organization

• How will the organization and pieces shape each other?

3. Competitive Lifecyle – Develop a portfolio of competitive advantages

• When do you transition / dispose / add pieces?

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