Homburg & Partner Chemical Monitor Trends and Challenges in the Chemical Industry Spring 2015 Chemical companies are satisfied with the current business situation and inorganic growth opportunities become increasingly important Homburg & Partner Alexander Lüring, Sebastian Elbel Mannheim I Munich I Dusseldorf I Boston I Zurich I Warsaw April 2015
Content 1. Background of the Chemical Monitor 2. Current Business Situation & Expectations 3. Current Trends & Challenges 4. Summary 5. Homburg & Partner 6. Your Contact 2
1. Background of the Chemical Monitor The Chemical Monitor Spring 2015 reveals not only the current business situation, but also the trends and challenges in the chemical industry From March to April 2015, Homburg & Partner conducted 53 telephone interviews among decision makers in Marketing and Sales of the chemical industry Background Central questions were focused globally: 1. How satisfied are the companies with the current business situation? 2. What are their expectations for the next six months? 3. How does their growth strategy look like? 4. What are the central topics and challenges regarding growth strategies? This presentation contains the main results of the survey, answering the four questions stated above The Chemical Monitor is conducted twice a year; in order to show market changes, some results of previous Chemical Monitor have been included in this presentation 3
1. Background of the Chemical Monitor All important chemical industries are included in the sample of the Homburg & Partner Chemical Monitor Spring 2015 Sample Composition Industries Function of Participants 24% 18% 4% 9% 8% 32% 3% 14% 8% 23% 8% 11% 14% 24% Print, Color, Coating Pharma & Health Care Marketing Head Product Management Automotive / Machinery Plastics Agriculture / Agro Chemicals Detergent / Body Care Management Sales Management Food Others* Sales Head Others** Spring 15 (n=53) Spring 15 (n=53) *E.g., textiles, metal, specialty chemicals, chemical logistics, inorganic chemicals; **E.g., business development, market research 4
1. Background of the Chemical Monitor Based on representatives from various company sizes, the sample composition reflects the versatility of the H&P Chemical Monitor Sample Composition Revenues 2014* Number of Employees 2014* 9% 5% 21% 6% 14% 6% 16% 35% 25% 49% 14% 100 mn 1.101 5.000 mn 100 1.101 2.500 101 500 mn > 5.000 mn 101 500 2.501 5.000 501 1.000 mn 501 1.000 > 5.000 Spring 15 (n=43) Spring 15 (n=51) *Global 5
1. Background of the Chemical Monitor Almost half of the participants consider their company / business unit as superior performance providers Product and Solution Type Superior Performance Provider My company / business unit offers innovative products with substantial 42% value added to products and services for my customers 6% 42% Service Oriented Product Supplier My company / business unit offers a standard product package without essential product advantages, but with differentiated service offering 28% 24% Tailored Solutions Partner My company / business unit develops and customizes individual product / 24% service packages for customers and offers joint R&D services 28% Basic Product Supplier My company / business unit offers an undifferentiated product package in a 6% transparent market, i.e., based on spot market behavior and index prices Spring 15 (n=50) 6
Content 1. Background of the Chemical Monitor 2. Current Business Situation & Expectations 3. Current Trends & Challenges 4. Summary 5. Homburg & Partner 6. Your Contact 7
2. Current Business Situation & Expectations After a very positive development in the last year, the Satisfaction Index has decreased slightly, but remains above the 2012 and 2013 levels Satisfaction Index? How satisfied are you with the current business situation of your company? 63% Ø 2015 = 2.5 Fully satfd 1 57% 2 2.0 2.0 2.7 2.5 2.7 2.9 2.9 2.4 2.5 3 4 26% Not satfd at all 5 6 2011 Q1 2011 Q2 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q2 2015 Q1 6% Fully satisfied 9% 2% 0% 1 2 3 4 5 6 Not satisfied at all Spring 15 (n=53) 8
2. Current Business Situation & Expectations Consistent with last year s trend, the Business Expectation Index continues to be positive Business Expectation Index? How are your business expectations for the next 6 months? Ø 2015 = 2.4 Very pos 1 61% 2 2.0 2.3 2.7 2.9 3.0 2.8 2.6 2.4 2.4 59% 3 4 34% Very neg 5 6 2011 Q1 2011 Q2 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q2 2015 Q1 2% Very positive 6% 0% 0% 1 2 3 4 5 6 Very negative Spring 15 (n=53) 9
2. Current Business Situation & Expectations The positive business outlook is mainly driven by the expected increase of order intakes due to customers improved economic situation Business Expectation Reasoning? Why do you expect that kind of business development in the next six months? (n=53) Reasoning for a positive business development. Top answers: Reasoning for a negative business development. Top answers: Increased order intake due to an improved economic situation of customers 27% Reduced order intake due to currency fluctuations hindering import 15% Increased order intake due to currency fluctuations, promoting export 11% Decreased order intake due to a worsened economic situation of customers 7% Increased order intake due to business seasonalities 7% Slowing down of market growth 5% Decreased costs due to low raw material prices 7% Increased costs due to high raw material prices 1% Others* 16% Others** 4% Spring 15 (n=53) *E.g., innovative portfolio, strong competitive position, demand stability; **E.g., price decreases, market uncertainties 10
2. Current Business Situation & Expectations In comparison to last year, this year s revenue development expectations are lower, but remain at a positive level Expectations for the Development of Revenues? How would you expect the development of revenues in 2015 compared to 2014? Ø 2015 = 4.0% Ø 2014 = 5.2% 55% 43% 46% 26% 4% 7% 8% 11% 0% 0% 0% 0% < 0% 0% to 5% 6% to 10% 11% to 20% 21% to 30% > 30% Summer 14: Growth of sales 2014 vs. 2013 (n=33) Spring 15: Growth of sales 2015 vs. 2014 (n=45) 11
Content 1. Background of the Chemical Monitor 2. Current Business Situation & Expectations 3. Current Trends and Challenges 4. Summary 5. Homburg & Partner 6. Your Contact 12
3. Current Trends and Challenges Although many companies are confident about internationalization, they also feel that there is room for improvement in pricing Current Business Situation? To what extent do you agree with the following statement? My division has a suitable internationalization strategy. 29% 40% 19% 4% 6% 2% My division knows the interests and needs of potential customers in new markets. 9% 53% 30% 6% 2% My division has a strategy considering future co-operations and / or acquisitions. 10% 47% 22% 10% 10% My division is well positioned considering new products and technologies. 13% 40% 36% 6% 6% My division has an ideal pricing strategy. 6% 43% 36% 15% 0% 20% 40% 60% 80% 100% 1: I strongly agree 2 3 4 5 6: I strongly disagree Spring 15 (n=53) 13
3. Current Trends and Challenges Four out of ten participants identify Innovation Management as the most important business activity for their division in the next 12 months Future Business Situation (Next 12 Months)? How relevant are the following business activities for your business division in the next 12 months?* Innovation Management (e.g., development of new products) 40% 28% 21% 11% Sales Strategy (e.g., enhancement of sales effectiveness) 25% 34% 28% 13% Pricing Strategy (e.g., enhancement of pricing strategy) 17% 28% 28% 26% Business Expansion (e.g., internationalization) 19% 9% 23% 49% 0% 20% 40% 60% 80% 100% Rank 1 Rank 2 Rank 3 Rank 4 Spring 15 (n=53) *Ranking from top to lowest rank 14
3. Current Trends and Challenges Innovation Management 40% 28% 21% 11% Sales Strategy 25% 34% 28% 13% Pricing Strategy 17% 28% 28% 26% Business Expansion 19% 9% 23% 49% 0% 20% 40% 60% 80% 100% Within the business activity Innovation Management, the development of new products is particularly noted to be central Future Business Situation (Next 12 Months) Central Business Activities (1/2)? Which aspect is central for your division? Companies who particularly consider Innovation Management as relevant mainly deal with. Companies who particularly consider Sales Strategy as relevant mainly deal with. New Products 67% Sales Effectiveness Increase 46% New Technologies 19% Sales Force Training 39% Business Model Adaptions 10% Restructuring Sales Strategy 15% Others* 5% Others 0% Spring 15 (n=21) Spring 15 (n=13) Companies that consider Innovation Management as their top activity notably concentrate on the development of new products and almost half of the companies focusing on Sales Strategy engage in sales effectiveness increases *E.g., development of new application areas of existing products 15
3. Current Trends and Challenges Innovation Management 40% 28% 21% 11% Sales Strategy 25% 34% 28% 13% Pricing Strategy 17% 28% 28% 26% Business Expansion 19% 9% 23% 49% 0% 20% 40% 60% 80% 100% The top issue within the business activity Pricing Strategy is the optimization of price implementation Future Business Situation (Next 12 Months) Central Business Activities (1/2)? Which aspect is central for your division? Companies who particularly consider Pricing Strategy as relevant mainly deal with. Companies who particularly consider Business Expansion as relevant mainly deal with. Price Implementation Optimization 56% Internationalization 40% Pricing & Condition System Adaptions 33% New Markets / Segment 40% Restructuring Pricing Strategy 0% Co-operations / M&A 20% Others* 11% Others 0% Spring 15 (n=9) Spring 15 (n=10) More than half of the companies that consider Pricing Strategy as their top activity deal with price implementation optimization and companies focusing on Business Expansion engage equally in internationalization and new markets *E.g., ongoing implementation of existing pricing strategy 16
3. Current Trends and Challenges Understanding markets is the most important key success factor for a growth strategy Your Growth Strategy? In your opinion, what are important success factors for a growth strategy?* Market Intelligence New Products / New Technologies 48% 62% You have to know your markets and specific customer demands in depth. Competitive Differentiation Pricing Optimization Sustainability 14% 14% 21% Companies have to be willing to make high investments for projects concerning new products and technologies, or they won t be able to grow or even stay competitive in the chemical industry. Human Capital Internationalization Service Offering Optimization 10% 8% 8% Being flexible while considering new markets and countries as well as new products will define a successful growth strategy. Human capital is still underestimated in today s growth strategies. Others** 10% Spring 15 (n=52) *Multiple responses possible; **E.g., quality assurance, CRM 17
3. Current Trends and Challenges Explanatory: Introduction to Organic and Inorganic Growth Introduction to Organic and Inorganic Growth The chemical industry experiences high competitiveness. In order to master the competitive environment and to survive in the medium- and long-run, many companies build their strategy on growth. There are two different forms of growth: Organic Growth and Inorganic Growth. Organic Growth Growth through own efforts Inorganic Growth Growth through other companies Examples: Growth through increasing output Growth through enhancing sales Examples: Growth through acquiring other companies or business units Growth through entering Joint Ventures Growth through committing to special co-operations 18
Organic Growth Inorganic Growth 3. Current Trends and Challenges Roughly every second participant states that growth is generated through mergers and / or acquisitions Organic and Inorganic Growth Share? What share of your growth strategy is generated by organic growth and which share by inorganic growth? 45% 55% 24% 0% 2% 12% 7% Share organic growth 0% 1% - 25% 26% - 50% 51% - 75% 76% - 99% 100% Share inorganic growth 100% 99% - 75% 74% - 50% 49% - 35% 34% - 1% 0% Spring 15 (n=42) Participants stressed the growing importance of inorganic growth opportunities, especially in the near future 19
Organic Growth Inorganic Growth 3. Current Trends and Challenges Organic growth is predominantly generated in Western and Eastern Europe as well as in Asia Organic Growth Focus Countries? In which countries is your company mainly trying to generate organic growth?* > 30% 21% 30% 11% 20% 1% 10% 0% Spring 15 (n=13) *Multiple responses possible 20
Organic Growth Inorganic Growth 3. Current Trends and Challenges Business expansion drives the current organic growth strategy of the interviewed business divisions Organic Growth Activities? Through which activities is your business division trying to achieve organic growth in 2015?* Business Expansion 49% The saturated European market makes it necessary to identify entirely new areas of application. Innovation 43% Portfolio Expansion Sales Optimization Competitive Differentiation 13% 17% 26% To become truly innovative, we have to closely observe our markets in order to identify new trends as early as possible. Sales optimization becomes crucial due to the high competitiveness. Pricing Optimization Sustainability 9% 8% Expanding our portfolio with innovative products as well as optimizing range and quality of services will be inevitable in order to stay competitive in the long-run. Others** 15% Spring 15 (n=53) *Multiple responses possible; **E.g., human capital, CRM, service offering expansion, optimization of project management 21
Organic Growth Inorganic Growth 3. Current Trends and Challenges Inorganic growth is predominantly generated in the US, Germany, and Eastern Europe Inorganic Growth Focus Countries? In which countries is your company mainly trying to generate inorganic growth?* > 30% 21% 30% 11% 20% 1% 10% 0% Spring 15 (n=31) *Multiple responses possible 22
Organic Growth Inorganic Growth 3. Current Trends and Challenges In order to be considered for acquisitions, an acquisition target particularly has to be profitable Inorganic Growth Acquisition Potential? Which basic features have to be fulfilled by a company, in order to be considered for acquisition?* Profitability Strategic Fit 27% 43% In order to be willing to acquire a company we have to see both, a strategic as well as cultural fit. We either have to identify a portfolio fit or its potential expansion. Portfolio Fit 27% Growth Opportunities Market Expansion 13% 23% A company of interest has to expand our portfolio to be able to tap into new markets, thus strengthening our competitiveness and negotiating power. Portfolio Expansion 13% Cultural Fit 10% Any company of interest has to pass a financial test with severe profitability benchmarks. Others** 23% Spring 15 (n=30) *Multiple responses possible; **E.g., expansion of human capital / capabilities, strong brand, strong technological positioning 23
Organic Growth Inorganic Growth 3. Current Trends and Challenges 70% of all participants whose companies grow inorganically have an overview of potential acquisition targets Inorganic Growth Acquisition Targets? To what extent do you agree with the following statement? We have an overview of potential acquisition targets. External support is necessary when selecting suitable acquisition targets. 70% 57% 13% 20% 7% 3% 0% 17% 20% 17% 23% 17% 0% 1 2 3 4 5 6 strongly agree strongly disagree Spring 15 (n=30) 1 2 3 4 5 6 strongly agree strongly disagree Spring 15 (n=30) Although 70% of all participants agree to have an overview of potential acquisition targets, there is a uniform distribution of opinions on whether external support is necessary when selecting suitable acquisition targets 24
3. Current Trends and Challenges Raw material prices are considered by far the most important issue in the chemical industry at the moment Top Issues in the Chemical Industry? In your opinion, which are the top issues in the chemical industry at the moment?* Raw Material Prices Currency Fluctuations Innovation Sustainability Resource Availability Competitive Differentiation Market Consolidation Others** 16% 14% 14% 12% 12% 8% 10% 43% Top 3 Issues Spring 2015: 1. Raw Material Prices 2. Currency Fluctuations 3. Innovation and Sustainability Top 3 Issues Summer 2014: 1. Sustainability 2. Raw Materials and Related Costs 3. Competitive Differentiation Spring 15 (n=51) In comparison to last year, the top issues in the chemical industry have shifted: Raw material prices gained importance and rose to this year s top issue while last year s top issue Sustainability was downgraded *Multiple responses possible; **E.g., CRM, internationalization, economic situation in Asia, internal restructuring processes 25
Content 1. Background of the Chemical Monitor 2. Current Business Situation & Expectations 3. Current Trends and Challenges 4. Summary 5. Homburg & Partner 6. Your Contact 26
4. Summary Summary H&P Chemical Monitor Spring 2015 Results What is the current situation in the chemical industry? Overall satisfaction with the current business situation is positive (index 2.5) but slightly below the previous year s level (index 2.4) Business expectations (index 2.4) have remained at the same level compared to last year Expected growth is still predicted to be positive: The average expected growth (4.0%) is lower than it was in summer 14 (5.2%), but the share of companies who expect double digit growth rates has increased by 3% (percentage of expected double digit growth summer 14 vs. spring 15: 8% vs. 11%) What are the current trends and challenges in the chemical industry? Raw material prices, currency fluctuations, innovation as well as sustainability are currently the top issues in the chemical industry Many companies are confident about internationalization, however, 20% lack a clear strategy to consider future co-operations and / or acquisitions Many companies identify room for improvement in pricing implementation What role does the topic organic and inorganic growth play? Understanding markets is the most important key success factor for a growth strategy Almost every second company already generates growth inorganically and this share is likely to increase as participants stressed the increasing importance of inorganic growth in the near future Organic growth is mainly achieved in Europe and Asia whereas inorganic growth is predominantly achieved in the US, Germany, and Eastern Europe Summary Chemical companies are satisfied with the current business situation and inorganic growth opportunities become increasingly important 27
Content 1. Background of the Chemical Monitor 2. Current Business Situation & Expectations 3. Current Trends and Challenges 4. Summary 5. Homburg & Partner 6. Your Contact 28
5. Homburg & Partner Homburg & Partner is the Hidden Champion for Marketing & Sales Consulting Best German Management Consultancy in Marketing & Sales* Homburg & Partner 424 McKinsey & Company 393 Simon, Kucher & Partners 386 Roland Berger 367 Boston Consulting Group 364 300 350 400 450 Perceived competence/ reputation in the market: 500 = Very High, 300 = Average, 100 = Low *Source: Independent Survey Hidden Champions In The Consultancy Market, Wissenschaftliche Gesellschaft für Management und Beratung, Prof. Dr. Dietmar Fink, 06/2012 29
5. Homburg & Partner Homburg & Partner with Best Customer Reviews for Marketing, Sales, Pricing & CRM according to brand eins / statista Survey Best Customer Reviews for Marketing & Pricing as well as for Sales & CRM * Homburg & Partner McKinsey & Company Boston Consulting Group 300 350 400 450 Customer Review : Cumulative Value for the categories Marketing & Pricing and Sales & CRM (awarded with twice three stars in the categories Marketing & Pricing and Sales & CRM, Homburg & Partner achieves top ratings) *Source: Joint industry report of German business magazine "brand eins" and "statista", the world's largest online statistics portal (05/2014) 30
5. Homburg & Partner We have a clear topic focus Excellence in Market Strategy, Sales & Pricing Market Orientation Innovation Management Organization & Leadership Marketing Performance Digital Transition Change & Culture Education & Academy Market Strategy Sales Pricing Growth Strategy Competitive Strategy Sales Strategy Organization & Processes Pricing Strategy Pricing Model Market Entry & Launch Brand Strategy Service Strategy Multi Channel Management Key Account Management Sales Performance Pricing Organization Benefit Pricing Service Pricing Portfolio Management Business Model Innovation Sales Force Development Systems & Instruments Price Implementation Price Controlling Market & Customer Insights Market Assessment Due Diligence Trend Evaluation Competitive Intelligence Needs Analysis Satisfaction & Loyalty Innovation Research Usability Tests 31
5. Homburg & Partner We feel committed to 6 common, fundamental corporate values that shape our collaboration and distinguish us Quality Individuality Passion Respect Team Spirit Economic Efficiency We convince through competence and professionalism We strive to inspire our clients and to overachieve their expectations We only accept projects in our area of competence and we are experts in what we do We treat every project as unique and analyze its specific challenges to develop tailor-made solutions for our clients Every employee is encouraged to develop his individual skill set and to take on responsibility accor-ding to his wishes and abilities We love our daily work and with our ambition we aspire towards excellent results with lasting impact Our passion is the source for the creativity and inspiration necessary to develop constructive and in-novative solutions to our clients issues We always treat our clients and our colleagues with the utmost appreciation Our collaboration is based on an open communication culture Our clients can rely on our integrity and trust-worthiness at all times We assume responsibility for our colleagues and look after each other Every employee can rely on the full support and encouragement of the team We regard our work as a partnership both among ourselves and with our clients We are dedicated to providing measurable results for our clients and ensuring the highest possible return on their investment We handle our clients resources with the utmost responsibility and we always have regard to concerns of efficiency 32
5. Homburg & Partner Homburg & Partner Facts & Figures Offices Size Industries Core competencies Partners Advisory Board National: Mannheim (HQ) Munich Dusseldorf 80 Consultants / Analysts 120 FTE Automotive Building / Construction Chemicals Consumer Investment Goods Financial Services Market Strategy Sales Pricing International: Boston Zurich Warsaw Healthcare Industrial Goods / Machinery Information & Communication Technology Private Equity Transport / Logistics Market Orientation Market & Customer Insights Chief Executive Officer: Dr. Sven Kühlborn, Dr. Michael Scholl Partner: Rolf Kunold, Alexander Lüring, Mark Schröder, Dr. Matthias Staritz, Markus Pfeifer. Associate Partner: Ernst Raue Prof. Dr. Dr. h.c. mult. Christian Homburg (Head of Advisory Board) 33
5. Homburg & Partner The Homburg & Partner Management Team Prof. Dr. Dr. h.c. mult. Christian Homburg Founder Head of Advisory Board Dr. Sven Kühlborn Managing Director & Partner Building & Construction, Chemicals Dr. Michael Scholl Managing Director & Partner Healthcare & ICT Rolf Kunold Partner Automotive, Industrial Goods & Machinery Mark Schröder Dr. Matthias Staritz Alexander Lüring Markus Pfeifer Ernst Raue Partner Industrial Goods & Machinery Partner Healthcare Partner Chemicals & Private Equity Partner Industrial Goods & Machinery Associate Partner 34
5. Homburg & Partner We have German roots; 65% of our projects are international International projects Warsaw Homburg & Partner ul. E. Plater 53 00-113 Warsaw Poland Boston Homburg & Partner 245 First Street-18th Floor Cambridge, MA 02142, USA Düsseldorf Homburg & Partner Bleichstr. 14 40211 Dusseldorf Germany Mannheim (Headquarters) Homburg & Partner Harrlachweg 3 68163 Mannheim Germany Zurich Homburg & Partner Oberfeldstrasse 14 8302 Zurich-Kloten Switzerland Munich Homburg & Partner Ludwigstr. 19 80539 Munich Germany 35
5. Homburg & Partner Focus industries and selected references Automotive Building & Construction Chemicals Consumer Investment Goods Financial Services Healthcare Industrial Goods & Machinery Information & Comm. Technology Private Equity Transport & Logistics & Partner 36
Content 1. Background of the Chemical Monitor 2. Current Business Situation & Expectations 3. Current Trends and Challenges 4. Summary 5. Homburg & Partner 6. Your Contact 37
6. Your Contact Your contacts at Homburg & Partner Alexander Lüring Partner Homburg & Partner Ludwigstrasse 19 80539 Munich Germany Phone.: +49 89 20359-0 Mob.: +49 170 7843489 www.homburg-partner.com alexander.luering@homburg-partner.com Sebastian Elbel Project Manager Homburg & Partner Ludwigstrasse 19 80539 Munich Germany Phone.: +49 89 20359-0 Mob.: +49 175 2635904 www.homburg-partner.com sebastian.elbel@homburg-partner.com 38
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