Chemistry 4.0. Growth through innovation in a transforming world

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Carmella Daniels
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1 Chemistry 4.0 Growth through innovation in a transforming world São Paulo/SP, December 8 th, 2017

2 A short video introduction into the subject 2

3 Agenda Trends Incremental trends create new business opportunities. Disruptive trends create winners & losers in new eco-systems Chemistry 4.0 Innovation that combines Digitalization and Circular Economy allows players in the chemicals industry to take an important role in those newly forming eco-systems Recommendations Companies should actively explore and capture digital and circular opportunities. A Chemistry 4.0 Health Check can help to focus on getting started 3

4 Trends

5 We identified 30 major trends, that have an impact on the chemicals industry until 2030 Trends (30) Classification Energy & Raw Materials (7) Societally / politically driven Business-to-Business (construction, mobility, packaging) (10) Business-to-Consumer (3) Agriculture (5) Incremental Disruptiv Pharma & Health Care (5) Entrepreneurial / economically driven Impact on chemicals industry Small - Moderate Large Impact Positive Neutral/Winner-Loser Negative impact on chemicals & pharmaceuticals industry 5

6 Incremental trends are areas, where chemicals companies perform well. Additional opportunities through digital tools Categorization of trends [12 of 30 are incremental] Incremental I/SP [#7] Bio-plastics as packaging Renewable resources Urban Farming Lightweight vehicles Energy-efficient buildings Renewable energy production technologies Genetically modified plants Material mix for packaging material Personalization Societally / politically driven I/EE [#5] Modular building Raw material mix and supply for Germany Large impact Moderate impact Little impact Impact: Positive, Neutral, Negative Material-efficiency in construction Entrepreneurial / economically driven 6 Note: D=Disruptive/I=Incremental; SP=Societally/Politically and EE=Entrepreneuerially/Economically driven

7 Incremental trends New, lightweight vehicles and materials Illustrative example carbon fibers 7 Sources: Schuberth, BMW, Boeing, Bilfinger, BBS, Deloitte

8 Disruptive trends will have a fundamental impact on the chemicals industry, creating winners and losers Categorization of trends [18 of 30 are disruptive] Societal / politically driven Carbon Capture Storage / Carbon Capture Utilization Waste-to-Chemicals Self-medication Agrarwende Electro mobility Genome editing in medical applications New medical technology Genome editing in plants Bio-refinery Power-to-X D/SP [#11] Perception of chemicals (discussion on ingredients) New mobility concepts Personalized Medicine Disruptive Entrepreneurial / economically driven Industrial Biotechnology E-Health Changing relations chemical supplier end customer Additive Manufacturing Digitalization of agriculture Large impact Moderate impact Little impact D/EE [#7] Impact: Positive, Neutral, Negative 8 Note: D=Disruptive/I=Incremental; SP=Societally/Politically and EE=Entrepreneuerially/Economically driven

9 Disruptive trends - New, electric drive trains in cars Impact on chemicals & materials Battery materials High performance polymers Catalyst Polyurethanes and polypropylenes Coolants (except A/C) Coatings Fuel & oil additives Pigments Axle/transmission/ engine lubricants Brake Pads Expected volume change 9

10 Chemistry 4.0

11 Digitalization and Circular Economy are the essential elements of Chemistry 4.0, following the 1.0, 2.0 and 3.0 developments Chemistry 4.0 Digitalization & Circular Economy Chemistry 3.0 Globalization & Specialization Chemistry 2.0 Petrochemicals 2010 Chemistry 1.0 Foundation and coal chemistry Source: VCI, BASF

12 Increasing customer needs The more disruptive the change, the bigger are customer needs. We see this as an opportunity for the chemicals industry Societal / political trends towards sustainability Incrmental Innovation Disruptive Changes Entrepreneurial / economically driven trends towards efficiency and new business opportunities Optimization Offering Customer Relationship Busioness Model Better products and processes New products and/or services (physical or digital) New roles, new cooperations, partnerships and customer relationships New business models in new digital and circular economic networks 12

13 Open, shared, publically available technologies New business model Precision farming 1. Product Smart Product Smart, connected product Smart Tractor + Sow Cultivate 4. Product-System Bio and organic Harvest Commoditization and generics Farmer/ Retailer Independent farmers AgChem and Digital Farming AgChem, Fertilizer, Seed, OEM, Software companies 5. Ecosystem Proprietary, integrated solutions Digital product Solution provider Platform integrator Integrated ecosystem Data intensity Intensity Asset intensity Source: ClimateCorp, (2015), PWC Global Industry 4.0 Survey; Deloitte 13

Physical product Digital product Price per unit Price per unit Marketing

14 Avoid the Digital Death Zone of incremental value steps. New business models are about thinking big and winner takes it all Physical product Digital product Price per unit Price per unit Marketing Zone (physical products) Digital Death Zone Value Value 14 Source: DowDuPont, Syngenta; Deloitte

15 Societal, political and factual requirements increasingly demand higher resource efficiency. Seven Rs to accommodate this need Application of chemicals & materials Production of chemicals & Produktion materials von Chemikalien und (Re-) Materialien Design Return Recycle Regenerate energy Removal Ressource efficient and climate friendly production Residue deposition 15

$climate friendly production Residue deposition Auxiliaries Solvents Lubricants Abrasives Coolants Heating oils, De-coating, de-icing, descaling chemicals Mining & fracking chemicals Packaging$ Plastics Syn. Fibers Syn.

16 Application of chemicals and materials with different characterristics - determine the use of the seven circular economy levers Production Chemicals/ Materials (Re-)Design Ressourceefficient and climate friendly production Residue deposition Auxiliaries Solvents Lubricants Abrasives Coolants Heating oils, De-coating, de-icing, descaling chemicals Mining & fracking chemicals Packaging Plastics Syn. Fibers Syn. Rubbers Composites, Cearmics, Alloys Catalysts, Membrances, Cell Cultures Application In Product concentrated In Product dispersed Additives, Ingredients, Pigments Resins Binders Consumption Cosmetics, Detergents, Care Chemical Pharmaceuticals, Food Supplements AgChems, Seeds, Fertilizers Water Chemicals Return Recycling Regenerate energy Removal Revenue share* 10% 35% 15% 40% Source: VCI, Sector associations, Deloitte *in Germany (estimated) 16

17 Goods, services, brand Collaboration (Data / Knowledge) Chemistry 4.0 From linear business models to new, complex often circular - ecosystems Competition Supplier Competition Supplier Producer Chemical Producer Distributor Distributor Customer Customer New players Software provider Hardware provider Value based on production of chemicals and materials [ /kg] Value based on designing and building smart, sustainable solutions [ /performance or solution unit] 17

New business model example Approach & Results Closed, dual-wall SafeTainer-System Chemical leasing paid per kg of cleaned clothing Ecosystem of dry cleaners, cleaning equipment manufacturers,

18 New business model example Approach & Results Closed, dual-wall SafeTainer-System Chemical leasing paid per kg of cleaned clothing Ecosystem of dry cleaners, cleaning equipment manufacturers, recyclers and distributors Digital track-and-trace next step Effect Drastic decline of mg halogenated solvent use per kg of clothings: Generation Quelle: Ecofys, FLK, SafeChem 18

19 Recommendations

20 Companies should secure their systems, become customer centric, enhance effectiveness & efficiency and explore new business models Cyber Security Process data Customer & supplier data Customer Centricity Efficiency & Convenience - No touch orders - Track-&-Trace systems - Integrated Omnichannels - Direct sales / Exclusive Distributor cooperations - Participate in platforms Customer Experience - Online technical services - Digital products & services - Personalization & integration - Collaborative & communicative - Attractive for millenials Smart products & new business models Customer Centricity Effectiveness & Efficiency Robot Process Automation (RPA) Workforce management (own & 3 rd parties) Preventive & predictive maintenance Process improvement Smart products & new business models Additive manufacturing (where applicable) Open innovation New ecosystem & Digital Business Models in a Circular Economy - Solution / Performance based - Co-operations and platforms - New concepts for participation Source: Workshops Chemistry 4.0, Political dialog sessions, Deloitte 20

21 Thank you for your attention! 21

Highly commoditized, low margin business, cyclical

Commodity Chemicals Highly commoditized, low margin business, cyclical Specialty Chemicals Agrochemicals Flavours and Fragrances, Nutrition Specialty catalysts (automobile/recycling) High performance plastics,