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Industrial Turnarounds: Lessons from the ‘Comeback Kids’

Three examples of manufacturing companies that successfully transformed in the face of unprecedented challenges.

Guiding a company through market disruption and reinventing it for the future is one of the truest tests of business leadership, and an increasingly common mandate for CEOs and leadership teams in every industry. Even companies that are strong today can see disruption on the horizon. According to BCG research, at any point in time at least a third of large U.S. companies are experiencing a severe, two-year decline in their ability to create shareholder value. For a firm facing serious, imminent problems, the need for a turnaround or transformation is dire. 

So, what goes into a successful turnaround? To flesh that out, we screened the S&P Global 1200 for companies that had endured a significant decline in revenue, profit margins and/or market capitalization since 2010, followed by a clear rebound in those metrics. We found 11 “Comeback Kids” – companies that successfully turned themselves around in the face of potentially devastating challenges. Collectively, these 11 companies’ margins have increased by a weighted average of more than 50% since 2013 – and their share price has jumped by over 87% over the same period, compared to an increase in share price of 41% for the S&P Global 1200.

The leaders of these 11 companies took rapid, dramatic steps in multiple ways to turn around their firms. Each of them developed a clear view of their situation and challenges, defined a new strategic focus for the company, reduced costs and complexity, fostered a culture of innovation and invested effectively in digital technology.

Three “Comeback Kids”

Three “Comeback Kids” in particular – Finnish paper manufacturer UPM-Kymmene, Spanish infrastructure firm Acciona and Japanese food chemicals firm Ajinomoto – may hold lessons for leaders in the industrial sectors who are looking at major change in their markets.

UPM-Kymmene: About half of Finnish paper company UPM-Kymmene’s revenue used to come from graphic paper, with magazine paper and newsprint making up the largest share of its sales. But digital news consumption, environmental concerns and other factors have led to deflating demand for the “mature” paper products that were once UPM’s focus. UPM’s paper businesses were facing pressure.

To increase performance, the company shifted to growth segment areas such as specialty paper (still a growth market), biofuels, biorefining and energy, and shifted resources away from mature businesses toward faster-growth businesses. The portion of revenue from declining paper markets has been reduced from about 70% in 2006 to below 50% in 2016. UPM-Kymmene also increased efficiency by consolidating assets, closing paper facilities and selling some forest property.

As a result, despite scaling back from its former core business, the company has maintained consistent revenue, while profit margins are up over 60% and the share price has soared by over 200% between 2013 and 2016. The UPM story demonstrates what’s possible when management accurately recognizes structural challenges in its industry and launches a bold transformation to address them.

Acciona: Similarly, Acciona, a Spanish company that develops and services infrastructure projects and specializes in renewable energy, experienced a drop of almost $300 million in EBITDA in 2012 and a subsequent share price drop of 9% when the Spanish government announced changes to renewable energy subsidies. In response, in 2013 Acciona President José Manuel Entrecanales launched a three-part turnaround to become less reliant on regulation, lower company debt and transform Acciona into a developer of projects, rather than a long-term owner.

In 2014, the firm canceled the interim dividend to shareholders and scaled back CAPEX spending to only those projects where it was committed to move forward. Acciona reduced costs in other areas, too – for instance, lowering energy costs by nearly $90 million in 2013 and 2014 – and raised capital through a strategic alliance with private equity firm KKR.

Acciona then restructured into three business lines: energy, infrastructure and other activities, giving the company a coherent set of offerings for clients and a more efficient internal structure. The firm also identified five strategic countries where it could grow: Mexico, India, the U.S., Australia and Chile. And, after reducing its debt, Acciona increased CAPEX spending and invested more in R&D – for example, in groundbreaking research in battery storage.

Overall, the turnaround led to a sharp improvement in financial performance. Debt as a percentage of EBITDA fell by about one-fourth from 2013 to 2016, EBITDA margins have rebounded to their pre-turnaround levels and market capitalization has more than doubled since 2012. Acciona was hit with the kind of market disruption that can put a company out of business. By aggressively reducing debt, cutting costs, tapping into new sources of financing, targeting higher-growth markets and investing in innovation, Acciona’s management team has created a sustainable future for the company.

Ajinomoto: Japanese chemical and food manufacturer Ajinomoto is a third example of a successful industrial turnaround. It faced challenges in the early 2010s, including more price competition, stemming in part from competitors’ increased production, and rising raw material costs. In 2014, management launched a turnaround aimed at shifting the portfolio away from processed bulk food goods (such as sweeteners, seasonings like MSG and amino acids used in animal nutrition) in favor of chemicals and bioscience – a move designed to get into more attractive segments.

Ajinomoto shifted resources to its R&D function and worked to develop more innovative and integrated solutions – rather than basic ingredients – for customers. It also sold some bulk business units, expanded into Thailand, Vietnam, the Philippines, Indonesia and Brazil, and invested in processed food companies in the U.S. and Africa. Ajinomoto is also using technology to cut production costs, reducing the raw materials and energy required for some processes.

The turnaround has led to a sharp improvement in financial performance. Operating profit has increased from $550 million in 2013 to $760 million in 2016. And over the same three-year period return on equity jumped from 7.1% to 9%, and market capitalization almost doubled, from $6.7 billion to $12.2 billion. Since launching the turnaround, Ajinomoto has armed itself for the future with a greater emphasis on innovation, value-added products and higher-growth markets and channels.

The stories of UPM-Kymmene, Acciona and Ajinomoto – and the eight other “Comeback Kids” – bring to life the value of strong and decisive leadership and a structured approach to turnaround initiatives, in situations where the stakes could not be higher.

Lars Fæste is a senior partner and managing director at The Boston Consulting Group, based in Copenhagen, Denmark and the global leader of the firm´s Transformation practice.

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