D R A F T

Presentation at Fastmarkets RISI conferenceVienna, March 12, 2019

Winning in the downturn – using digital to enhance productivity

A G E N D A

Introduction

Faster horses

Preparing for the downturn

Using digital to enhance productivity

Delivering results

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• Top management consulting firm, helping leaders in every industry make their most critical decisions on strategy, operations, organization, M&A and IT

• Founded in 1973, 7000 employees in 55 offices worldwide

• Worked with over 5000 companies, including 2/3 of the Global 500

• Consulted on 50% of the largest global private equity deals in the last decade

• 85% of business comes from companies with whom we’ve worked before

ILKKA LEPPÄVUORI BAIN & COMPANY

• Partner, Helsinki

• 13 years with Bain

• Head of EMEA Forest Products, Paper & Packaging Practice

• Relevant experience:- Forestry, pulp, paper, packaging,

tissue, sawmilling, production machinery - Performance improvement, commercial

excellence, digitalisation, strategy, M&A

Introduction

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Key messages

• Digital is here to stay

• Productivity improvement need and cyclicality are also here to stay

• Downturn is the time to attack!

• Digital will bring new levels of productivity

• But winning requires also changing behaviors

A G E N D A

Introduction

Faster horses

Preparing for the downturn

Using digital to enhance productivity

Delivering results

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Happy times in 2017-18 have allowed for budgets to both digital dreamers and doers

(today we’ll talk mostly about faster horses)

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The case for continuous productivity improvement and ‘faster horses’: inflation adjusted costs will always continue to decline as a function of cumulative experience

Example 1: shale gas drilling costs

Example 2: electric car battery costs

Example 3: wood productivity

Tested and works also for instance in…

• Air conditioners• Building materials• Cars and car tyres• Coal• Crushed stone• Glass containers• Nylon• Plastics• Pulp, paper, board

production• Packaging converting• Steel• …

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In reality, continuous improvement happens in “bursts”

Even out key deviations Find the new best practice level Even out deviations again

I L L U S T R A T I V E

A G E N D A

Introduction

Faster horses

Preparing for the downturn

Using digital to enhance productivity

Delivering results

10190312 Winning in the downturn ...HEL

1990-91Savings and loans crisis

2001-02Dot-com bubble

2007-09Global financial crisis

2009-12Double dip recession

Recessions come regularly – in different shapes

Note: FTSE end of month last price values; Consumer spending values recorded at constant 2015 prices and seasonally adjusted Source: Bloomberg, ONS

Deep crisisIndustry/ geography specific

Mild and broad

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Pre recession Post recessionDuring recession

Acknowledge recession late, cut deep to survive

Take opportunities

Winners accelerate growth and enter a virtuous cycle in a downturn

Source: Capital IQ; Bain Analysis

Complacent growth with no contingency planning &situation assessment

Anticipate downturn, build resilience and prepare action plan

Struggle to bounce

Accelerate growth

Acting early allows thoughtful consideration of readiness measures and recession opportunities

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Successful companies can enter a virtuous cycle in a downturn

Typical: Vicious cycle With the right preparation: Virtuous cycle

Complacent growth Build resilience

Struggle to bounce

Struggle -Deep cuts

Under prepared

Accelerate growth

Well prepared

Before

During

After

Before

During

After

Take opportunities

Acting early allows thoughtful consideration of readiness measures and recession opportunities

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The time to act is now; your starting point influences your options in preparation

Degree of stability of thebusiness model

Weak Strong

Obsolete

Stable

• Growth• EBITDA margin

evolution

‘TURNAROUND’

Redesign the operational modelUse strong competitive positionto improve performance

‘GO B IG OR GO HOME’

Restructure the businessFocus on high impact cost/cash initiativesto protect company from distress, whilebuilding the basis for revenue recovery

‘BURNING AMBIT ION’

Accelerate growthLeverage positioning to take advantageof unique opportunities to expand reach

‘REINVENTION’

Reinvest in value propositionUse strong financial position to protect marketand invest on revenue enhancing initiatives

Relative competitive position• Customer NPS • Relative cost position• Market share

A G E N D A

Introduction

Faster horses

Preparing for the downturn

Using digital to enhance productivity

Delivering results

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Next wave of productivity: overview if what the winners are investing in

BETTER CUSTOMER INSIGHTS AND

RELATIONSHIPS

BETTER VISIBILITY AND CONTROL OVER SUPPLY

CHAIN

OEE AND COST PER TON IMPROVEMENT IN

PRODUCTION

LEAN, AUTOMATED, AND VALUE ADDING SUPPORT FUNCTIONS

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Better customer insights and relationships: examples

Digital self service Digital marketing and lead generation

• Moving (at least) the tail of small customers to e-channel, to improve customer experience and reduce cost to serve

• Including design (e.g. corrugated boxes), order entry (from ‘order taking to order shaping’), and track & trace

• Understanding who is searching for your company or products you are producing – and regularly linking the findings to your sales pipeline process

• Pushing digital marketing to target segments

Better customer experience, lower cost to serve Significant increase in sales pipeline value

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Better visibility and control over supply chain: examples

Statistical demand forecasting Real time visibility on end-to-end supply chain

• Advanced demand forecasting algorithms to more accurately predict demand (orders and call-offs)

• Sales reacting to statistical baseline forecasts rather than making manual bottom-up estimates by customer

• Real-time visibility solutions for tracking location, temperature, etc. on all loads across all modes for shippers, 3rd party logistics (3PL), brokers, carriers

Dramatic improvement in forecast accuracy Improved customer feedback and OTIF

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OEE and cost per ton improvement in production: examples

Remote monitoring Predictive maintenance Mobile workflow management

• Separating what truly needs to be observed next to the equipment vs. can be remotely monitored

• Accumulating scale to improve cost efficiency and specific expertise

• Systematic, sensor-based monitoring of critical equipment

• Predictive algorithms covering all key drivers of OEE losses, e.g. pipes, pumps, valves…

• Linked to preventive maintenance actions (e.g. inspection rounds)

• Removal of ‘waste’ according to Lean principles, e.g. unnecessary movement, waiting, or manual work

• Example: maintenance technician creating spare part order list on the field, using mobile application with voice recognition

Lower headcount per shift Improved technical availability Improved technician ‘wrench time’

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Support functions: zero-based budgeting

Zero-based budgeting: external spend Zero-based budgeting: organisation

• Up-to-date, full transparency and visualisation on all external spend – by category, BU/site, and supplier

• Budgets built on true cost drivers (not last year’s budget)

• Cross-cutting ‘cost package’ owners with mandate to challenge BU specific spend on items not under central sourcing agreements

• Periodical challenging of the organisational design based on truly ‘blank sheet of paper’ – if we built this company from scratch today, which positions would we really need?

• Reducing the ‘what’, e.g. remove ‘nice-to-have’ services

• Optimising the ‘how’, e.g. automation/digital, RPA

• Regular review of organisational ‘spans and layers

Reduced external spend through better control Lower overhead costs, fewer layers

A G E N D A

Introduction

Faster horses

Preparing for the downturn

Using digital to enhance productivity

Delivering results

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Most transformations struggle to deliver – and it’s not easier in the digital world

Traditional transformation

Digital transformation

Achieved or exceeded expectations

Failed to deliver, producing less than 50% of the expected results

Settled for dilution of value and mediocre performance

12%

5%

20%

20%

68%

75%

In a study of hundreds of companies executing major changes…

Based on our recent ‘Digital 360’ Barometer…

What do the 12%/5% do better than the others?

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Making change stick is still difficult: 5 best practices

What is our beach? Leadership aligned on picture of the future, and roadmap

Who is our spine? Committed organization, effective sponsorship

What behaviors move the needle? Shift 2-3 key behaviors to drive results

Who is our coach? Program management from referee to coach

How much more can our sponge absorb? Manage capacity limits

5 best practices to deliver results Practical implications

How will you paint the picture of a better future to e.g. mill workers? What motivates them? You perhaps care about EBITDA improvement but what ‘makes them tick’?

Is everyone on layers 1, 2, 3, etc. truly committed to the planned change? Who is only ‘paying lip service’? Convince them all before you try to address layers below

What are the 2-3 new behaviors that you would like each affected employee group (blue collars, production management, country sales, etc.) to adopt?

What is the quality and resourcing of your program management office? Can they actually help the line organisation, or do they just ‘fill the templates’?

How many ‘corporate initiatives’ are already ongoing? Who are the bottlenecks in the organisation who just can’t absorb more? Which initiatives should we stop?

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Take-home questions to conclude our discussion

• What is the health of your core business?

• Do you have your ‘Plan B’ ready for the downturn? (cost, capex, pricing, organic market share gain)

• What is your game-plan for digital-enabled productivity boost?

– Where in your operations will your next productivity leap come from?

– How digital is your supply chain and manufacturing setup today?

– How do you scale your most promising digital use cases and connect them to the productivity improvement agenda?

– Do you have an up-to-date, granular view of all external spend and all employees in the organisation?

• Do you have what it takes to beat the odds in change management?