Price Volatility presents chance for new growth strategies – KPMG Outlook
A new global outlook on energy by KPMG Global Energy Institute ‘Global CEO Outlook – Energy perspective’ has shown that most energy CEO’s have on their focus the need to develop new growth strategies, as well as reduce cost structures and increase cash flow from operations as capital markets insist on dividends and growth.
The report further shows that the top challenges to various executives interviewed include the needs to strengthen processes and achieve operational excellence, while responding to ongoing regulatory and market changes in order to ensure financial growth
“Given these tumultuous times, it is not surprisingly that a majority of chief executives in energy are focusing their time on leading their companies in rethinking their strategies and business models. Asset and business portfolios are being evaluated rigorously to assess fit, including current profitability, upside potential, and having the competitive advantages and position necessary to drive current and future margins,” says Benson Ndung’u Partner, Head of Energy and Natural Resources KPMG East Africa.
The outlook also showss that the need to drive competitive advantage is leading companies to consider the cost and value impact of their products and services on customers, and whether their business model propositions to customers offer a strong enough solution.
“The use of alliances and M&A is escalating to create more compelling solutions as well as capture cost reductions through synergies,”Ndung’u adds.
A view shared by Head of Deal Advisory KPMG East Africa Sheel Gill who foresees energy companies develop a closer relationship with lenders as equity markets remain pessimistic. The CEO’s continue to seek alternative funding solutions as ‘distressed funds’ seek investment opportunities.
“Larger, more diversified companies now employ significantly more rigorous capital allocations programs, prioritizing value over volume, and are also focused on making significant organizational changes and headcount reductions,” says Sheel.
Interestingly however, acquisitions are also a key growth focus area, presumably as the more financially strong companies look for distressed ‘bargains’ as a result of low oil prices. To date however, largely due to successful restructuring, large numbers of such distressed situations have not arisen.
In summary 2016 and near future, CEOs are seeking to balance risk with the need for new business models to drive growth, recognizing that challenging times require new approaches. And they anticipate thereafter shifting their focus from setting new strategies to ensuring their execution.
Other key highlights of the outlook show that CEOs are more confident about their company’s prospects for growth over the next 3 years than they were last year, CEOs plan to dedicate significant financial resources to their global expansion efforts, many energy organizations are not ready for cyber-attacks and that most energy companies will change their operating model over the next 3 years..