Page 175 - CW E-Magazine (17-12-2024)

Special Report

anti-dumping duties on some Chinese M&A deals, however, show that some grew from 5% to 8% in the latest five-
PET imports – and increasingly in companies are trying to find creative year period, although Europe is still
PVC.) European companies continue to ways to address these challenges. placed at the bottom of our regional
struggle with low demand, a stringent rankings. However, due to their rigor-
regulatory environment, and the Despite these factors, average five- ous cost control initiatives, European
impacts of the energy crisis. Recent year TSR among European players chemical companies experienced the
lowest margin declines out of all re-
How We Calculate and Report TSR gions between 2019 and 2023. In addi-
Total shareholder return (TSR), of free cash flow to investors and debt tion, many companies with a European
which accounts for the change in share holders – in the form of dividends, footprint have a strong global asset net-
price and any other effects on share- share repurchases, and repayments of work, which allows them to counter-
holders’ net wealth in a specified period, debt – to determine the contribution of balance the poor financial performance
represents the percentage increase free-cash-flow payouts to a company’s of their European assets with that of
in a company’s value – stock price TSR. their non-European assets.
plus dividends – over a given period.
Only companies listed on public stock All of these factors interact – Northeast Asia chemical companies
exchanges can provide the data needed sometimes in unexpected ways. A delivered mixed results. South Korea
to calculate TSR. company may increase its earnings led the region with average five-year
per share through an acquisition and TSR of 22%, while Japan posted a
Several factors affect TSR. Readers yet create no TSR if the acquisition below-average TSR performance of 6%
of BCG’s Value Creators series may erodes its gross margins. Moreover, due to large declines in valuation multi-
be familiar with our methodology some forms of cash contribution (such ples. In North America, TSR increased
for quantifying the relative contri- as dividends) can impact a company’s to 9%, up from 3% in the prior five-year
butions of the various components valuation multiple differently than period. The improvement was largely
of TSR. (See the exhibit.) We use the others (such as a share buyback); the driven by moderate growth in com-
combination of revenue (sales) growth effects are complex. modity petrochemicals – supported by
and change in margins as an indicator demand in growing end markets, cheap
of a company’s improvement in funda- In this report, the TSRs used for natural gas, and the impact of US sub-
mental value. We then use the change groups and for purposes of compari- sidies for green initiatives – as well as
in the company’s valuation multiple to son are generally medians. The TSRs higher dividends.
calculate the impact of investor expec- associated with individual compa-
tations on TSR. Together, those two nies are straight calculations of those The Middle East’s chemical industry
factors determine the change in a com- companies’ capital gains – changes in was also severely impacted by China’s
pany’s market capitalization. Finally, share price value plus dividend value – increased exports of commodity
our model also tracks the distribution rounded to the nearest percentage. chemical products, leading to reduced
Total Shareholder Return Is the Product of Multiple Factors demand for chemicals from the region.
In addition, the end of ultra-cheap local
Revenue growth feedstocks has exacerbated the chal-
Profit growth lenges facing players in the region and
Margin change contributed to a decline in revenues and
Capital gains
a particularly sharp drop in EBITDA
Change in margins. As a result of these factors,
multiple
Total shareholder five-year annual TSR among Middle
return
Dividend yield East players fell to 1% from 9% in the
prior five-year period.
Cash flow
Share change ƒ contribution
The global industry is likely to face
continued oversupply in several com-
Net debt change
modity products due to China’s ambi-
Source: BCG analysis. tious investment strategy and related
Notes: “Share change” refers to the change in the number of shares outstanding, not to the change export activities, combined with softer
in share price.
demand in key industries such as auto-
Chemical Weekly December 17, 2024 175

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