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Chemicals

Chemicals. Portfolio - Costs - Value Propositions - People. Disclaimer.

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Chemicals

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  1. Chemicals Portfolio - Costs - Value Propositions - People

  2. Disclaimer This presentation contains forward-looking statements that are subject to risk factors associated with the oil, gas and power businesses. It is believed that the expectations reflected in these statements are reasonable, but may be affected by a variety of variables which could cause actual results or trends to differ materially, including, but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates.

  3. Shell Chemicals: Key Themes Portfolio Value Propositions Costs People

  4. Shell Chemicals: Key Themes Key Business Activities • Complete divestment programme • Increase Ventures contribution to Shell Chemicals profitability • Global capital management Portfolio Value Propositions Costs People

  5. Current Portfolio PVC/Wavin Carilon Solvents Polypropylene HODER EO/Glycol Lower Olefins Polyethylene Catalysts PDO PET Aromatics Additives PS SM/PO Sadaf PU Foams Resins Phenol BPA/ECH GPR/Elastomers Base Chemicals Intermediates Polymers Specialities

  6. Chemicals Portfolio Restructuring • Dedicated Task Force • Divestment completed of three smaller businesses • Actively marketing two other businesses now • Preparation for disposal of remaining businesses

  7. Chemicals Portfolio Restructuring Divestment Locations

  8. Chemicals Portfolio Restructuring • Dedicated Task Force • Divestment completed of three smaller businesses • Actively marketing two other businesses now • Preparation for disposal of remaining businesses

  9. Chemicals Portfolio Restructuring Deals Proceeds Range (USD mln /deal) Very Small < 100 PU Foams(2) / GPR / PS (4) Small 100 - 500 PET / Carilon / PVC(2) Medium 500 - 1500 Epoxy Resins / Elastomers “Special” >1500 Montell (50%)

  10. Chemicals Portfolio Restructuring DEAL TIMELINE 1999 Jan Apr July Oct PET GPR Epoxy Resins Elastomers (2) PU Foams (2) PVC (Wavin) Carilon Polystyrene (4) Sale Date IM Date

  11. Montell’s Product Lines Montell Product Target Area Price/Volume Speciality Materials Engineering Thermoplastics Plastics Bulk Plastics • Polypropylene • Technology licensing& catalysts • Advanced polymer materials • Film & fiber Liquid Crystals Fluoro- Polymers Hivalloy Catalloy PP Copolymer Poly Styrene PVC Polypropylene

  12. Chemicals Portfolio Restructuring • In Summary: • Robust divestment strategy • Progress on schedule • Market interest is high

  13. Future Portfolio Solvents Polypropylene EO/Glycol HODER Polyethylene Lower Olefins Catalysts PDO Phenol Additives Aromatics SM/PO • Integration • Advantaged technologies • World-leading positions Sadaf Base Chemicals Intermediates Polymers Specialities

  14. Future Portfolio Historical Growth (%) 0 2 4 6 8 10 Hoder Solvents PP 1 EO/Glycol Catalysts Olefins 2 SM/PO Aromatics 3 4 Phenol 5 World Rank PE 6 7 8 9 10 Industry Growth Estimates: 1993-98

  15. Retained Businesses:Underlying Business Performance • Realign portfolio to businesses where Shell has or can achieve leadership • Fit with Shell strengths - Cracker products - Primary derivatives 30% 20% ROACE 10% 0% -10% 89 90 91 92 93 94 95 96 97 98 Includes 50% Montell

  16. Major Petrochemical Sites Stanlow/Carrington, UK Mossmoran, UK Pernis/Moerdijk, NL Godorf, Germany Scotford, Canada Berre, Fr. Deer Park, US Norco, US Geismar, US Singapore Petrochemical Refinery Excludes Ventures

  17. Base Chemicals and IntermediatesWe win by…. Delivering BulkPetrochemicals • Close to Cracker • Similar Strategies • Focused Investments Providing the Lowest Total Delivered Cost To Large Industrial Customers • Low Cost Culture • World Scale Plants • Feedstock Integration • Focused Process R&D • Fewer Customers • Stronger Relationships Through Simpler Structures • Clearer & Focused Accountability • Streamlined Processes • Consolidated Support Services

  18. Key Business Activity:Increase Ventures Profitability 30% • Ventures essential component to strategy • Integration • Critical mass • Separate operating model PBUs 20% ROACE 10% Retained Ventures 0% -10% 89 90 91 92 93 94 95 96 97 98 Includes 50% Montell

  19. Future Portfolio Differentiated Petrochemicals Polypropylene Polyethylene Higher Value Delivery Ventures Catalysts More & Diverse Customers Additives More Complex Structures Operating Model: Polymers & Specialities Polymers Specialities

  20. Capital Investment 3,000 2,500 2,000 $ million 1,500 1,000 500 0 1992 1994 1996 1998 2000 2002

  21. Capital Investment1999-2003 Asia Pacific Americas Europe/ Africa 3,000 Geographic Profile 2,500 2,000 New Sites HSE C&M $ million 1,500 Project Profile New Plants 1,000 Debottle- necks 500 0 1992 1994 1996 1998 2000 2002

  22. Selected Investments Moerdijk: SMPO Plant with BASF Cracker Expansion Petrochemical Refinery Scotford: Ethylene Glycol Plant Norco: Cracker Expansion Deer Park: Phenol Plant

  23. Capital Investment • Ongoing investment focused on retained businesses • Affordable capital expenditure ceilings • Global investment committee

  24. Shell Chemicals: Key Themes • Key Business Activities • Reduce fixed costs & working capital • Achieve procurement savings • Optimise Oil/Chemicals integration • Maximise plant technical availability Portfolio Value Propositions Costs People

  25. Shell Group Cost Improvements 2001 target Chemicals 2.5 • $350 mln 2001 • Retained Portfolio • Planned Expansions • Comprehensive cost programme 2.0 1.5 Pre tax $ billion 1.0 0.5 0.0

  26. Cost Programme • External benchmarking in 1998 • Targets established to close the gaps with leaders • Portfolio of similar businesses allow streamlined processes • Dedicated Cost Leadership Team • Detailed targets and personal accountability for delivery established

  27. Cost Leadership Process Chemicals Executive Committee Cost Leadership Team ü ü ü Process Design Integration Implementation Who • Global process teams • Global process/resource teams • Global resource teams What • Profile activities • Baseline costs/resources • Generate options • Assess impact/risks • Define targets • Assign accountabilities • Execute plan • Track progress When • Plans - January • Solutions - March • April • Mid-1999 to end 2000

  28. Cost Improvement Targets Planning & Development Marketing & Selling IT, R&D, HSE Services & Management Manufacturing & Logistics

  29. Cost Programme - Progress • Global restaffing in progress • First staff reductions June 1999 • Redesign activities continuing - complete end 1999 • Full implementation by end 2000 • Example: Procurement costs • Exceeded 1998 target of $90 mln • On target to achieve additional $150 mln in 1999

  30. Shell Chemicals: Key Themes Portfolio Value Propositions • Key Business Activities • Develop and implement Value Propositions at key customers • Enhance profitability by matching service offerings to customer requirements Costs People

  31. Lower Olefins Value Proposition Competitors #1 #2 #3 #4 #5 #6 #7 Shell Basic Offerings V-Crackers, Condo-Crackers Global/Multiple Location Delivery Flexible Pricing Options Product Quality/Consistency Supplier Owned Inventory New Offerings Risk Management Bundled Products & Services

  32. Hoder Value Proposition • Proprietary technology • Product extensions • Flexibility to respond to shifting demand • Proven global supplier • Supply security--ethylene integration • Scale, operational excellence • “One-stop shop” • Supply chain optimisation • Supplier managed inventory Preferred Supplier to Leading Global Customers

  33. Shell Chemicals: Key Themes • Key Business Activities • Re-staff organisation • Embed personal development framework • Gain leadership in HSE • Implement diversity plan Portfolio Value Propositions Costs People

  34. People • Clear bottom line accountability • Focused organisational structures • Customer fulfilment • Procurement • Operational excellence • Workforce focused on results • Selected on “winning attributes and behaviours” • Aligned on Strategic Themes, Key Business Activities & Performance Indicators • Aligned variable pay programmes - 80% plus of staff tied to global results • Reduced workforce from 12.5K to 8K (excluding Ventures) • 1K (cost driven redundancies) • 3.5K (divestments)

  35. Shell Chemicals: Key Themes Portfolio Value Propositions Costs People

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