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Agricultural Chemicals 2015 Supply Chain Benchmarking Study

Accenture works with the leading agrochemical companies to annually benchmark supply chain and business performance. This report highlights the key findings and insights from our 2015 study, which focused on the quantitative aspects of performance within the crop protection segment.

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Agricultural Chemicals 2015 Supply Chain Benchmarking Study

  1. 1. Agricultural Chemicals 2015 Supply Chain Benchmarking Study – Summary of Findings Copyright © 2016 Accenture All rights reserved.
  2. 2. Study Background 2012-2014 data for the leading global agrochemical companies Benchmark key financial metrics and analyze reasons for individual peers deviating from average Accenture works with the leading agrochemical companies to annually benchmark supply chain and business performance. This report highlights the key findings and insights from our 2015 study, which focused on the quantitative aspects of performance within the crop protection segment. Crop protection segment only Active ingredient (AI), formulations & finished products (FFP) and raw material (RM) supply chains Quantitative metrics across key financial measures (revenue, COGS, EBITDA), working capital, capital efficiency, product portfolio and supply chain strategy Scope Provide study participants with fact-based view on potential areas for improvement Define key performance indicators (KPIs) for comparative analysis amongst participating companies Objectives Copyright © 2016 Accenture All rights reserved. 2 View glossary on slide 11 for explanation of terms
  3. 3. Executive Summary The KPI dashboard below summarizes the findings of our survey across all metrics that were evaluated. The combination of declining revenue growth and increasing inventory levels while CAPEX to revenue ratios remained stable suggests that agrochemical companies may not have anticipated the slow down or the pace and severity of diminishing growth. Thus, they continued to invest even as revenues began to decrease. KPI Industry Peer Average (2014) Industry Peer Average (2013) Revenue Growth YOY 4.5% 10.7% EBITDA Margin 23.9% 24.8% EBITDA Growth YOY 0.9% 14.1% Days Sales Outstanding (DSO) 126 days 119 days Days Payables Outstanding (DPO) 106 days 103 days Days on Hand (DOH) Inventory 215 days 205 days Cash Conversion Cycle Time 236 days 221 days CAPEX Growth 24% 26% CAPEX to Revenue Ratio 0.05 0.04 Return on Invested Capital (ROIC) 31% 35% Number of new product (formulation) launches 64 65 Copyright © 2016 Accenture All rights reserved. 3 View glossary on slide 11 for explanation of terms
  4. 4. Study Results Financials Copyright © 2016 Accenture All rights reserved. 4 Supply Chain Strategy Working Capital Capital Efficiency Product Portfolio View glossary on slide 11 for explanation of terms.
  5. 5. -10% -5% 0% 5% 10% 15% 20% 25% YOYGrowth% Financials Annual revenue growth rates have slowed significantly YoY. Average rates dropped almost 60% from 2013 to 2014 (from 10.7% to 4.5%). Findings Insights Copyright © 2016 Accenture All rights reserved. 5 View glossary on slide 11 for explanation of terms. From 2012 to 2014, EBITDA margins maintained a stable range of 24-25%. However, there was a large increase from 2012 to 2013 (2.6% to 6%) in EBITDA margin spread. In line with decreasing revenue growth, average annual EBITDA growth also showed a major decline, falling from 14% in 2013 to 1% in 2014. Annual Revenue & EBITDA Growth Though with varying magnitude, all participants were impacted by the challenges facing the industry. The wide yet consistent range of EBITDA growth suggests there is opportunity for underperforming firms to improve by at least “reverting to the mean.” 24% 25% 24% 20% 25% 30% 2012 2013 2014 Range Average EBITDA Margin 2013 2014 Revenue Growth 10.7% 4.5% 14.1% 0.9% 2013 2014 EBITDA Growth Range Average Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
  6. 6. 6 Working Capital Copyright © 2016 Accenture All rights reserved. Findings Insights 80 120 160 200 240 280 320 2012 2013 2014 View glossary on slide 11 for explanation of terms. Cash conversion cycle (CCC) days increased 11% between 2012 and 2014, steadily rising from 213 to 236. This was driven mainly by rising DSO and DOH without a corresponding increase in DPO (i.e., companies are taking longer to convert inputs to cash flows). Average DOH inventory levels rose 10% (from 196 to 215), with AI and RM driving the increase while FFP posted a slight decline The variation in the range of CCC days across participants suggests significant potential for companies to improve their working capital position. The observed inventory composition shift away from FFP toward AI and RM indicates possible adoption of postponement strategiesthat is, moving stocks to earlier production stages for greater flexibility Cash Conversion Cycle Inventory Levels & Composition 213 221 236 Days FFP AI RM 20 60 100 140 180 220 215 110 (51%) 71 (33%) 35 (16%) 2014 111 (57%) 57 (30%) 28 (14%) 2012 196 114 (56%) 62 (31%) 29 (14%) 2013 205 Days Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
  7. 7. Capital Efficiency Copyright © 2016 Accenture All rights reserved. Findings Insights 7 3.7% 4.2% 5.0% 0% 2% 4% 6% 8% 10% 2012 2013 2014 Range Average 1.64 1.88 2.20 0.0 1.0 2.0 3.0 4.0 2012 2013 2014 Range Average View glossary on slide 11 for explanation of terms. Average CAPEX growth has remained relatively consistent at 24-26%. ROIC has also been fairly stable, ranging from 31% to 35%. While depreciation as a percentage of EBITDA has been flat at 9-10%, the CAPEX to depreciation ratio increased from 1.64 to 2.20. The data indicates increasing investment activities in the industry and implies a focus on future growth and expansion. CAPEX to Depreciation Ratio CAPEX to Revenue Ratio CAPEX as a percentage of revenue increased steadily from 3.7% to 5%. Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
  8. 8. Product Portfolio Copyright © 2016 Accenture All rights reserved. Findings Insights 8 90 65 64 450 327 321 0 100 200 300 400 500 2012 2013 2014 #ofNewProducts Average Participant Total View glossary on slide 11 for explanation of terms. The scope of new product launches has apparently narrowed, potentially to improve EBITDA through cost containment and driving ROIC on targeted product launches New Product Launches The number of new product launches across participating companies dropped significantly from 2012 to 2013 but levelled off in 2014. Note: New product launches were defined as the number of new formulations introduced globally each year. It does not include existing formulations that have been extended into a new region. Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
  9. 9. Supply Chain Strategy Copyright © 2016 Accenture All rights reserved. Findings Insights 9 60% 40% 40% 80% 100% 100% Economic risks Environmental risks Distributors Geopolitical risks Own production network Suppliers and tollers % of Companies 40% 20% 60% 80% 0% 25% 50% 75% 100% Measure Impact of Sustainability Measure Quantitative Contribution of Sustainability Yes No View glossary on slide 11 for explanation of terms. All participants have formal programs in place to mitigate supply chain delivery risk. The three most commonly cited elements considered in a supply chain risk strategy are: 1) suppliers and tollers, 2) own production network and 3) geopolitical risks. Measurement of the impact and quantitative contribution of sustainability is limited among participants. There is a disconnect between what participants say about the importance of sustainability and what they are doing. All believe that sustainability impacts brand value and reputation, but few enforce the measurement of its contribution. Elements considered in supply chain risk strategy Measurement of sustainability impact and contribution Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
  10. 10. Looking Ahead Copyright © 2016 Accenture All rights reserved. With a flagging global economy and crop prices expected to remain low at least until 2017, volatility in the agrochemical sector is expected to continue for some time into the future. To survive, grow, and establish a competitive advantage during this period, it is critical for agrochemical companies to optimize their supply chain strategy and operations. Accenture believes this requires a keen focus on the following three important areas: 1. Planning with purpose to increase agility and efficiency of the asset base 2. Embracing new digital technologies across the farm-to-table value chain to enable richer visibility of assets and distribution modes and enable predictive analytics 3. Strategic cost reduction to respond to immediate market challenges while retooling to be ready for the next upturn in the commodity cycle Agrochemical companies face a(nother) “new normal,” particularly in light of the industry-changing mergers and acquisitions that have recently been announced, with more anticipated. Those that adapt to the new business landscape will be best positioned for scalability, ease of integration and future growth. We look forward to sharing the results of our 2016 study early next year. 10 View glossary on slide 11 for explanation of terms.
  11. 11. Term Definition AI Active ingredients and related intermediate materials CAPEX Capital Expenditures = sum of proceeds and purchases related to investing activities CAPEX to Depreciation Ratio CAPEX / Depreciation CAPEX to Revenue Ratio CAPEX / Revenue Cash Conversion Cycle (CCC) Inventory Days of Supply + Days Sales Outstanding – Days Payable Outstanding COGS Cost of Goods Sold = cost associated with buying raw materials and producing finished goods; includes direct (labor, materials) and indirect costs (overhead) DOH Days on Hand = inventory days of supply; the amount of inventory (stock) expressed in days of sales DPO Days Payables Outstanding = [12 month rolling average of gross accounts payable] / [total gross annual material purchases / 365] DSO Days Sales Outstanding = the length of time from when a sale is made until cash for it is received from customers; the amount of sales outstanding expressed in days EBITDA Earnings before interest, taxes, depreciation and amortization FFP Formulations and finished products, and related intermediate materials Invested Capital Operating net working capital + net property, plant & equipment + capitalized operating leases + other operating assets + operating intangibles − other operating liabilities − cumulative adjustment for amortization of R&D Net Investment CAPEX - Depreciation RM Raw materials for AI and FFP plus packaging materials ROIC Return on invested capital Toller Processor who charges a fee ("toll") for processing raw materials 11 Glossary Copyright © 2016 Accenture All rights reserved.
  12. 12. Accenture Insights Platform: Simplifying Analytics for Businesses 12Copyright © 2016 Accenture All rights reserved. Additional suggested reading Digital Supply Chain Planning in Chemicals: Six Capabilities to Win Digital Agriculture: Improving Profitability Is Your Supply Chain a Growth Engine? Walking the Walk: Drive Competitiveness Through Ethical Supply Chains Driving Unconventional Growth through the Industrial Internet of Things
  13. 13. Copyright © 2016 Accenture All rights reserved. 13 Learn more about us on Accenture.com. Chemicals Agribusiness Supply Chain Follow our conversation on chemicals. Contact us for additional information about the 2015 Agricultural Chemicals Supply Chain Benchmarking Study. Michael Insogna Senior Manager, Chemicals Accenture Consulting michael.a.insogna@accenture.com Philipp Aggarwal Manager, Operations Consulting Accenture Strategy philipp.aggarwal@accenture.com @AccentureChems on Twitter Accenture Chemicals on LinkedIn Jennifer Helle Managing Director, Global Agribusiness Lead Accenture Consulting jennifer.a.helle@accenture.com
  14. 14. About Accenture Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions—underpinned by the world’s largest delivery network—Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With approximately 373,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com. This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative. 14 Copyright © 2016 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

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