Companies in many industries across the globe are at a crossroads today, facing a series of changes that are reshaping the market landscape. Economic uncertainties driven by inflationary pressures, geopolitical tensions, higher interest rates and slower economic growth are forcing companies to rethink their strategies and operations to maintain a competitive edge and stay resilient.
'Geopolitical tensions are putting pressure on energy and feedstock prices and rendering global logistics more complex and expensive. This is especially impacting the European environment, resulting in high cost and weak demand due to inflationary pressures,’ says Vikash Jalan, vice president of IR and planning at the Bangkok-listed petrochemicals company Indorama Ventures.
‘Specific to our industry, subdued local demand in China is driving overcapacity and fueling cheap exports, putting pressure on both volume and margins. Higher interest rates are driving up capital costs and testing the viability of many companies’ business models.
‘Feedstock prices in western markets will increase over time as peak oil demand draws closer and refineries shut down, while the reverse will occur in emerging Asian markets as capacity rises, driving feedstock costs lower.’
With manufacturing operations in 35 countries and more than 70 percent of its revenues generated from products related to daily necessities such as polyethylene terephthalate resins for food and beverage packaging for Coca-Cola and PepsiCo, Indorama had to rethink its strategy.
Sharing his views on how his firm is responding to such pressures in A geopolitics playbook for IROs, Jalan says Indorama is taking various actions at a management level. He says that despite expecting limited margin growth in the next two years, the business anticipates its earnings ‘to reach peak levels by 2026.’
‘This will be achieved by improving the quality of earnings through innovation, increasing sustainable products, using digital tools and cutting fixed costs by right-sizing our assets footprint. We are also reducing our debt through an IPO of two subsidiaries and divestment of two non-core businesses,’ he tells IR Magazine.
‘Internally, we have held several town hall meetings with our employees, who interact with different stakeholders,’ he adds. ‘We discuss the key messages we need to communicate. On the business side, we have several differentiations and strengths, such as proximity to our customers in multiple countries, as one example. We communicate these details and nuances both internally and externally, using platforms such as our annual capital markets day event to start with, followed by updates.’
External input
IR Magazine research for the playbook found that nearly 60 percent of IROs seek external experts’ opinions regarding geopolitics. Similarly, 50 percent of survey respondents said they look at analysts' notes about peers or consider central bank or regulatory policy notes, while 46 percent say they regularly consult earning calls or transcripts of peers.
‘For external insights, we rely on consultants that specialize in their respective fields, such as IHS, ICIS or Wood Mackenzie, and also feedback from our interactions with multiple stakeholders,’ says Jalan.
‘Internally, we hold regular business meetings where managers provide updates. Additionally, we work with external consultants on specific projects and have recently completed the implementation of the SAP S/4HANA tool to enhance our capabilities. We are now working on an integrated business-planning tool to further leverage our digital platform. Another critical component of our strategy is peer benchmarking and analysis, which is a routine part of our work.’
This article features one of the case studies from A geopolitics playbook for IROs, sponsored by AlphaSense.
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