agricultural chemicals 2015 supply chain benchmarking study
TRANSCRIPT
Agricultural Chemicals2015 Supply Chain Benchmarking Study –Summary of Findings
Copyright © 2016 Accenture All rights reserved.
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
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View glossary on slide 11 for explanation of terms
Executive SummaryThe 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 PeerAverage (2014)
Industry PeerAverage (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
Copyright © 2016 Accenture All rights reserved.
Study Results
Financials
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Supply Chain Strategy
Working Capital
Capital Efficiency
Product Portfolio
View glossary on slide 11 for explanation of terms.
-10%
-5%
0%
5%
10%
15%
20%
25%
YO
Y G
row
th %
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
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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.”
2012 2013 201420%
25%
30%
24%25% 24%
Range Average
EBITDA Margin
2013 2014
Revenue Growth10.7%
4.5%
14.1%
0.9%
2013 2014
EBITDA Growth
Range Average
Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
Copyright © 2016 Accenture All rights reserved. 6
Working Capital
Findings Insights
2012 2013 201480
120
160
200
240
280
320
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 strategiesthat is, moving stocks to earlier production stages for greater flexibility
Cash Conversion Cycle Inventory Levels & Composition
213 221 236
Day
s
FFP AI RM
20
60
100
140
180
220215
110(51%)
71(33%)
35 (16%)
2014
111(57%)
57(30%)
28 (14%)
2012
196
114(56%)
62(31%)
29 (14%)
2013
205
Day
s
Source: Accenture 2015 Agricultural Chemicals Supply Chain Benchmarking Study
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Capital Efficiency
Findings Insights
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2012 2013 20140%
2%
4%
6%
8%
10%
3.7%
4.2%5.0%
Range Average2012 2013 2014
0.0
1.0
2.0
3.0
4.0
1.641.88
2.20
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
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Product Portfolio
Findings Insights
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2012 2013 20140
100
200
300
400
500
90 65 64
450
327 321
Average Participant Total
# of
New
Pro
duct
s
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
Copyright © 2016 Accenture All rights reserved.
Supply Chain Strategy
Findings Insights
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Economic risks
Environmental risks
Distributors
Geopolitical risks
Own production network
Suppliers and tollers
60%
40%
40%
80%
100%
100%
% of Companies
0%
25%
50%
75%
100%
40%
20%
60%
80%
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
Looking Ahead
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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 visibilityof 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.
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View glossary on slide 11 for explanation of terms.
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 producingfinished 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 cashfor 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
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Glossary
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Accenture Insights Platform: Simplifying Analytics for Businesses
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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
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Contact us for additional information about the 2015 Agricultural Chemicals Supply Chain Benchmarking Study.Michael InsognaSenior Manager, ChemicalsAccenture [email protected]
Philipp AggarwalManager, Operations ConsultingAccenture [email protected]
@AccentureChems on Twitter
Accenture Chemicals on LinkedIn
Jennifer HelleManaging Director, Global Agribusiness LeadAccenture [email protected]
About AccentureAccenture 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.
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