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POP QUIZ
For fiscal year 2013: RPA Total
1. How much Cash was on hand? ______
2. How much Cash was generated from Operating Activities? ______
3. What was Revenue from Sales (Total Sales)? ______ ______
4. What was Net Income (Adj. Net Operating Results)? ______ ______
5. What was Net Income Margin (OR Margin)? ______ ______
6. What was our Return on Average Capital Employed? ______ ______
7. What was our Return on Assets? ______
8. How much did Revenue from Sales Change YOY? ______ ______
9. How much did Net Income (Net OR) Change YOY? ______ ______
10. How much did Earnings Per Share (EPS) Change YOY? ______
11. What was our TRIR per Million hours worked in 2013? ______
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LEARNING OBJECTIVES
Understand the key performance measures that are important to Total, RPA and the Executive Team.
List and describe the five business drivers all successful businesses must focus on.
Teach specific components of Total’s financial statements.
Better articulate company performance & strategy.
Create a personal action plan that can positively impact personal performance and company results.
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BUSINESS CAN BE TOUGH
Only ~30% of business start-ups survive past 5 years.
16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
Why do businesses fail?
RAM CHARAN BELIEVES…
“When it comes to running a business successfully, the street vendor and the CEOs of some of the world’s largest and most successful companies talk and think very much alike.”
5-Step Approach per Driver
Case Study
1. Define the driver
2. Know how we measure it.
3. Know why it is important.
4. Discover our numbers (& competitors’).
5. Create an action plan.
CASH DEFINITIONS
What is required to grow and maintain the business.
Cash & Cash Equivalents: At any point in time, the sum of: (1) Cash on hand, (2) Cash balances in checking and savings accounts, and (3) Cash equivalents (easily convertible to cash within 90 days).
MEASURES
Cash Flow: During any period of time (month, quarter, year), all cash collected from core operations less all cash used for operating expenses or activities. This does not include cash from investing and financing activities, which are important, but are not the primary reason you are in business.
DEFINITION
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CASH IS KING!
“Cash is a company’s oxygen supply.”
-Ram Charan
“Cash is more important than your mother." Al
Shugart Former Seagate CEO
What happens to a company that runs low on cash?
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SOURCES OF CASH
• Earn it • Cash from Operation
• Sell Assets• Cash from Investing
• Borrow it• Cash from Financing
Pro: No Cost -Con: Time
Pro: Immediate -Con: Reduces Assets
Pro: Immediate -Con: Cost (Interest)
Can a company have too little cash?
Can a company have too much cash?
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CAN A COMPANY HAVE TOO MUCH CASH?
Challenges of Too Much Cash
1) More attractive in a buy-out.2) Low return.3) Shareholders don’t like it.4) May make poor decisions.
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HOW MUCH CASH SHOULD A COMPANY HAVE?
Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures; plus they should hold a little bit more in case of emergencies.
Investopedia
CASH PERFORMANCE
Business Measures and Metrics Total S.A. Total S.A. Total S.A. Total S.A. Total S.A.
Year 2013 2012 2011 2010 2009Revenue from Sales € 171,655 182,299 166,550 159,269 112,153Cash Cash and Cash Equivalents € 14,647 15,469 14,025 14,489 11,662Cash from Operating Activities € 21,473 22,462 19,536 18,493 12,360
Millions of Euros €
Top 5 uses of Cash Total S.A. 2013
Dividend Payouts Paid a total of 5,485 Million € in Dividends
Capital Expenditures Paid out 22,400 Million € in Capital Expenditures
Stock Buyback 179 million € in 2013
Merger and Acquisitions 16 Million € in Acquisitions of Subsidiaries (net of Cash acquired)
Change in Cash (822) Million € in 2013
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S&P 500= 10%
BENCHMARKS ON CASH
Business Measures and Metrics Total S.A.TOT
Exxon MobilXOM
ShellRDS.A BP Chevron
CVX Year 2013 2013 2013 2013 2013
Revenue (Sales) $ $251,731 $438,255 $459,599 $396,217 $228,848
Cash Cash and Cash Equivalents $ $19,481 $N/A $9,696 $22,520 $16,245Cash as % of Revenue 7.74% 12’-2.19% 2.11% 5.68% 7.34%Cash from Operating Activities $ $28,559 $44,900 $40,440 $21,100 $35,002
Millions of US dollars $
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It is what remains after all expenses are subtracted from all revenues. Can it be expressed in dollars ($) or percent (%).
MEASURES
DEFINITION
PROFIT DEFINITIONPage 10
Gross Profit/Margin – Profit after subtracting cost of goods sold.
Operating Profit/Margin – Profit after cost of sales and SG&A are subtracted.
Net Earnings / Net Earnings Margin – Profit after all expenses have been subtracted from sales.
Presentation title - Place and Country - Date Month Day Year 14
Every business must earn a return that is greater than the cost of using other
people’s money.
-Ram Charan
No Margin, No Mission.
-Stephen R. Covey
PROFIT: BASIC TOTAL P&L
= Gross Profit $29 29%
= Net Income $ 5 5%
Revenue from Sales $100 - Costs of Goods Sold $71
- Taxes $ 6
- Exploration Costs $ 1= Operating Income $10 10%
- SG&A, DD&A, Other $18
- Interest Expense & other $ 1
Margin
+ Equity Income of Affiliates $ 2
PROFIT: BASIC RPA P&L
= Gross Profit $ 88%
= Adjusted Net OR $ 1 1%
Total Sales $100 - Costs of Production $ 92
- Fixed Operating Costs $ 3= EBITDA $ 3
3%
- Variable Operating Costs $ 2
- Interest & Taxes $ 1
Margin
-Depreciations & provisions $ 1= Adjusted OR $ 2 2%
DRIVING PROFITHIGH AND LOW PROFIT MARGINS
S&P Average TTM: ~10%
Who has much higher profit margins?
Microsoft 28%Apple 22%Pfizer 22%
Why the high margins?
DRIVING PROFITHIGH AND LOW PROFIT MARGINS
S&P Average TTM: ~10%
Who has lower profit margins?
Wal-Mart 3.8%Costco 1.9%The Kroger Co. 1.6%
Why the low margins?
PROFIT PERFORMANCE
Business Measures and Metrics TOTAL S.A.
TOTAL S.A. TOTAL S.A. TOTAL S.A. TOTAL S.A.
Year 2013 2012 2011 2010 2009Revenues from Sales € 171,655 182,299 166,550 140,476 112,153Net Income (loss) € 8,661 10,756 12,581 10,807 8,629Profit Gross Margin 29.41% 30.45% 31.62% 33.67% 36.64%Operating Margin 10.38% 12.23% 15.0% 13.81% 13.23%Net Margin 5.05% 5.90% 7.55% 7.69% 7.69%EPS€ 3.73 4.70 5.44 4.71 $(3.67)
Millions of Euros €
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PROFIT PERFORMANCE
Business Measures and Metrics RPA RPA RPA RPA
Year 2013 2012 2011 2010Total Sales $12,455 $14,382 $11,320 $9,049Adjusted Net Operating Results $161 $6 $41 $26Profit Gross Margin 13.63% 9.98% 13.60% 9.01%EBITDA 3.27% 1.81% 3.5% 2.76%Adjusted Net Operating Results Margin 1.29% .04% .36% .29%
Millions of $
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BENCHMARKS ON PROFIT
Business Measures and Metrics
Total S.A.TOT
ExxonMobilXOM
ShellRDS.A BP Chevron
CVX Year 2013 2013 2013 2013 2013Revenue (Sales) $251,731 $438,255 $459,599 $396,217 $228,848Net Income (loss) $11,209 $32,580 $16,371 $23,758 $21,423Profit Gross Margin 29.41% 27.61% 16.97% 17.75% 35.4%Operating Margin 10.38% 13.17% 7.67% 8.02% 15.69%Net Margin 5.05% 7.48% 3.56% 6% 9.36%EPS $4.95 $7.37 $2.60 $1.23 $11.09
Millions of US dollars $
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ASSETS
DEFINITION
What we have and how well we use what we have.
MEASURES
ROACE — Return on average capital employed. Measure of income generated from capital invested into the business.
Proved Reserves (BBoe)—indicates those reserves that have reasonable certainty of being recoverable.
Production (BBoe)— Gas production is converted to Boe at rate of 6 Mcf per Bbl of oil. NGL production is converted to Boe at rate of one-to-one basis with oil.
Availability and Utilization
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ROAReturn on Assets
ROCEReturn on Capital Employed
ROICReturn on Invested Capital
ROEReturn on Equity
ROA tells you what earnings were generated from total assets. ROA for can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA of a similar company.
Net IncomeTotal Assets
Used to assess a company's efficiency at allocating the capital to drive profitable investments. ROIC gives a sense of how well a company is using its money to generate returns. Comparing a company's return on capital (ROIC) with its cost of capital (WACC) reveals whether invested capital was used effectively.
Net Income – DividendsTotal
Capital
A ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce shareholders' earnings.
EBIT
Total Assets - Current Liabilities The amount of net income returned as a percentage of
shareholders equity. ROE measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is useful for comparing profitability of a company to other firms in the same industry.
Net IncomeShareholders’
Equity
ASSETS-RETURNS
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RETURN ON AVERAGE CAPITAL EMPLOYED
ASSETS
Business Measures and Metrics
TOTAL S.A. TOTAL S.A. TOTAL S.A. TOTAL S.A. TOTAL S.A.
Year 2013 2012 2011 2010 2009Revenues from Sales € 171,655 182,299 166,550 140,476 112,153Net Income (loss) € 8,661 10,841 12,581 10,807 8,629Assets Return on Average Capital Employed (ROACE) (W/Adjustments)
13.2% 15.8% 16% 16% 13%
Return on Assets 4.96% 6.31% 7.48% 7.36% 6.61%
Millions of Euros €
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RPA ASSETS PERFORMANCE
Business Measures and Metrics RPA RPA RPA RPA
Year 2013 2012 2011 2010Total Sales $12,455 $14,382 $11,320 $9,049Adjusted Net Operating Results $161 $6 $41 $26Assets ROACE (with/adjustments) 4.7 .2% 1.1% .8%
Millions of $
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BENCHMARKS ON ASSETS
Business Measures and Metrics
Total S.A.TOT
ExxonMobilXOM
ShellRDS.A BP Chevron
CVX Year 2013 2013 2013 2013 2013Operating Revenue $251,731 $438,255 $459,599 $396,217 $228,848Net Income (loss) $11,209 $32,580 $16,371 $23,758 $21,423Assets Return on Average Capital Employed (ROACE)
13.2% 17.2% 7.9% 9.15% 13.5%
Return on Assets (ROA)
4.99% 7.43% 4.58% 3.86% 8.51%
Millions of US dollars $
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Presentation title - Place and Country - Date Month Day Year 29
ASSETS IN ACTION
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide-Saved over 28,541,472 miles-Saved 3 million gallons of fuel-Reduced insurance premiums-Reduced maintenance frequency and costs
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GROWTH DEFINITION
DEFINITION
The ability to increase year over year, quarter over quarter, and/or month over month.
“In today’s business world, no growth means lagging behind in a world that grows every day…”
“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”
MEASURES
Revenue Growth
Net Income Growth
Earnings Per Share Growth
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Presentation title - Place and Country - Date Month Day Year 31
BUSINESS IN RAPID DECLINE…
• Best & brightest leave first.
• Productivity goes down.
• Morale goes down.
• Costs are cut, which limits ability to grow, company becomes less profitable.
Studies Show:
It usually takes 4 or 5 years for the company to recover.
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Presentation title - Place and Country - Date Month Day Year 32
BUSINESS IN RAPID GROWTH…
• Attracts/Retains the best & brightest!
• Productivity goes up = more profit = more cash = more ability to grow!
• Morale is high.
• You have the ability to grow in your career!
Growth gets more time & attention than any of the 5 drivers in a public company.
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GROWTH PERFORMANCE
Millions of Euros €
Page 15
Business Measures and Metrics
TOTAL S.A. TOTAL S.A. TOTAL S.A. TOTAL S.A. TOTAL S.A.
Year 2013 2012 2011 2010 2009Revenues from Sales € 171,655 182,299 166,550 140,476 112,153Net Income (loss) € 8,661 10,841 12,581 10,807 8,629Growth Revenue Growth -5.84% 9.46% 18.56% 25.25% -30.05%Net Income Growth -19.48% -13.83% 16.42% 25.24% -21.22%Earnings Per Share Growth -20.51% -13.24% 15.5 24.60% -19.75%
GROWTH PERFORMANCE
Business Measures and Metrics RPA RPA RPA RPA
Year 2013 2012 2011 2010Total Sales $12,455 $14,382 $11,320 $9,049Adjusted Net Operating Results $161 $6 $41 $26Growth Total Sales -13.40% 27.05% 25.10% N/AAdjusted Net Operating Results 2,583.33% 583.33% 57.69% N/A
Millions of $
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BENCHMARKS ON GROWTH
Business Measures and Metrics
Total S.A.TOT
ExxonMobilXOM
ShellRDS.A BP Chevron
CVX Year 2013 2013 2013 2013 2013Operating Revenue $251,731 $438,255 $459,599 $396,217 $228,848Net Income (loss) $11,209 $32,580 $16,371 $23,758 $21,423Growth Revenue Growth -5.84% -8.83% -4.59% 2.1 % -5.4%Net Income Growth -19.48% -27.41% -39% 111.16% -18.17%Earnings Per Share Growth -20.51% -24.02% -38.97% 114.12% -16.74 %
Millions of US dollars $
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PEOPLE
DEFINITION-The External Customer or Internal Customer that has the ability to impact the success of the business.
-Employees
MEASURES
Total Recordable Incident Rate (TRIR)-is a measure for the total number of incidents per Million hours worked.
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PEOPLE PERFORMANCE
Millions of Euros €
Page 17
Business Measures and Metrics TOTAL S.A. TOTAL S.A. TOTAL S.A. TOTAL S.A.
Year 2013 2012 2011 2010Revenues € 171,655 182,299 166,550 140,476Net Income (loss) € 8,661 10,841 12,581 10,807People Total Recordable Incident Rate 1.6 1.8 2.2 2.6
BENCHMARKS ON PEOPLE
Business Measures and Metrics
Total S.A.TOT
ExxonMobilXOM
ShellRDS.A BP Chevron
CVX Year 2013 2013 2013 2013 2013Operating Revenue $251,731 $438,255 $459,599 $396,217 $228,848Net Income (loss) $11,209 $32,580 $16,371 $23,758 $21,423People Total Recordable Incident Rate(Per Million Hours Worked)
1.6 1.0 1.2 1.6 .82
Millions of US dollars $
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What is more important than meeting customer expectations?
Exceeding?Anticipating Customer Needs & Expectations!
“If I would have asked my customer what they wanted, they would have said a faster horse!”
~Henry Ford
PeoplePage 17
Step 1: Who is your most critical customer right now?
Step 2: What does your customer most want from you?
Step 3: How would your customer rate you on your performance?
Step 4: What 2 things can you do to improve your rating?
PEOPLE
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Presentation title - Place and Country - Date Month Day Year 42
TOTAL S.A.
The Annually Reported Financial Statements• Statement of Cash Flows• Statement of Income (P&L)• Balance Sheet
1. What is the basic equation for each statement?
2. What is the purpose of the statement?
3. What are the key numbers and how are they trending?
4. How can you impact each statement?
Indicates:Profitability
SG&A:
• Salaries•Sales commissions•Benefits/Severance• Rental Expense• Bad debt charges• Merger integration costs• Professional services: Attorney fees, Accounting
(Revenue = Sales) = Top Line
= Bottom Line
Operating Income= EBIT
Equation: Revenues– Expenses = Income
COGS
P&L
-5.8%
-19.48%
-4.5% -4.8%
130%Operating margin = 10.38%
Net Income margin = 5.05%
Net Profit Margin
Net Income: 8,661
Total Revenue: ÷ 171,655
= 5.05%
S&P 500 Ave. = ~10%
Earnings Per Share (EPS)= Net Income /Diluted Shares Outstanding
171,655-153,844=17,811
12.9%
Operating Margin
Operating Income: 17,811 Revenues ÷ 171,655
X100 = 10.38%
Increase Sales by
100K
+100+ 71
- 16+ 13
Decrease costs by 100K
-100
- 56+ 44
Taxable
income+100
Presentation title - Place and Country - Date Month Day Year 45
WHICH IS BETTER?
Raising Revenues $100K = $13
-or-
Cutting Costs by $100K = $44
What are the implications of each action?
(SG&A)
(Revenue = Sales)= Top Line
= Bottom Line
COGS
47Building Business Acumen®- Houston USA – May 14-15, 2013
48
Least Liquid
Most Liquid
Due Last
Due First
Due in < 1 year
Equation: Assets =Liabilities + Equity
Equity Position: 43.2%
Snapshot in time
Indicates:Financial (asset)
Strength
Cash in < 1 year
?
?
Balance
Current Ratio = 1.37
Started Year Ended Year
Net Change in Cash
?
?
EquationCash from operations
+ Cash from investing
+ Cash from financing
= Net Change in Cash
PurposeCash
Management
14,647
21,473
171,655
171,655
8,661
5.05
13.25
4.99
-5.84
-19.48
-20.51
1.6
8,661 171,655
(84,152+88,739)/211,452
173,4918,661
182,299
8,661 10,756
3.72 4.68
1
2
3
4
5
6
7
8
9
10
11
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HOW WILL I REMEMBER THESE?
®
PeopleEmployeesCustomers
GrowthTop LineBottom Line
AssetsStrengthUtilization
ProfitRevenuesExpenses
CashOn HandGeneration
1) Assign one of the business drivers to each person at your table.
2) Take a few minutes to answer the questions below: How would you define this business driver? How is it measured? Why is it important to our organization? How can I impact this business driver in my role?
3) Review with your group the answers you found.
REVIEW AND TEACHING (PAGE 19)
53
When you think of a company
rich in Cash,
who comes to mind?
(Take notes on page 20)
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CASH EXAMPLE
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Microsoft CEO defends cash 'problem'
Steve Ballmer says… “the company would rather have too much cash on
hand rather than return it to shareholders”.
May 31, 2006 CNN Money
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PROFIT EXAMPLE
Total Sales $17,088 100% $24,855 100%
Wages 4,749 28% 6,897 28%Fuel 6,120 36% 8,717 35%D&A 844 5% 1,015 4%Landing fees 1,043 6% 1,304 5%Commissions - - 1,050 4%Maintenance 1,132 7% 1,400 6%Food Service - - 536 2%Aircraft Rentals 355 2% 550 2%Contr. Ser. & other 2,222 13% 2,892 12%
$16,465 96% $24,748 99.6%Operating Inc. $623 4% $107 0.4%
Interest net 119 1% 586 2%Misc gain 181 1% 242 1.0%Reorganization 2,282 9.0%Taxes 264 1% 569 2.3%
Net Income $421 1.1% $1,876 -7.5%
Total Op Exp.
Company A Company B20122012
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ASSET UTILIZATION EXAMPLE
Company A DellCompany B
2006 2006
Sales $55,908 $3,981
Net Profit Margin 6.0% -0.2%
Inventory Turnover 83.7 22.5
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GROWTH EXAMPLE
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When you think of a company with great Customer service,
who comes to mind?
AppleCostco
NordstromSouthwest
Zappos
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FUNCTIONAL ACTIVITY (PG. 38-39)
Identify in rank order, which driver your organization is focused on the most, down to which driver you are focused on the least.
1
2
3
4
5
Be prepared to share your thinking with the class!
Cash
Assets
Growth
People
Profit
1) What are the current strategies to drive performance?
2) How is performance measured on those drivers with the greatest focus?
3) What are the biggest challenges currently being faced in this function?
4) What support is needed from other functions?
5) Based on what you have learned, how will this information influence your action/approach?
(Example)
Presentation title - Place and Country - Date Month Day Year 61
EXECUTIVE ALIGNMENT (PG. 40-41)
Which business drivers seemed to get the most attention and why?
What were the two or three main points the executive(s) was trying to make?
What are the goals and objectives going forward?
Based on what you learned, how will this information influence your action/approach?
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COMPETITOR REPORTS
• ExxonMobil• Royal Dutch Shell• BP• Chevron
Keep your friends close, and your enemies closer.
--Lao Tzu
• Lyondellbasell• Marathon Petroleum• Valero Energy
63
COMPANY ANALYSIS (PAGE 42-43)
Use these sources:
1) Financial analysis (fill out the NTF)
2) CEO letter
3) Recent quarterly earnings release
4) One year stock performance
To answer these questions:
1. Which of the 5 Business Drivers are most important to them? Why? How might this change in the next 3-5 years?
2. How was their performance around the 5 Business Drivers and key financial trends (NTF)? Where did they do well? Not do well?
3. What are the companies key strategies?4. What are the companies key strengths?5. How well positioned are they to succeed long-term? Where are they at greatest
risk?
64
RETAINING CONTENT OVER TIME
Time
Con
tent
Ret
entio
n
15%
ReviewApplyTeach
Page 36
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REVIEW AND ACTION PLAN (PAGES 36-37)
What new insights did you gain (today) as a result of attending?
How will this material impact your daily activities?
Action Plan: List 1-2 Actions You Will Commit to do.
66
POST COURSE ACTION ITEMS:
1. 7 days: Teach one of the principals learned in class today, to someone in your department.
2. 7 days: Discuss your action items with your manager in the next 7 days.
3. 30 days: Read part 1 of “Seeing the Big Picture”
Start now:
Build and practice your new business acumen skills.
When making decisions, determine how the outcome will impact Cash, Profit, Assets, Growth, People…
67
LEARNING OBJECTIVES
Understand the key performance measures that are important to Total, RPA and the Executive Team.
List and describe the five business drivers all successful businesses must focus on.
Teach specific components of Total’s financial statements.
Better articulate company performance & strategy.
Create a personal action plan that can positively impact personal performance and company results.
68
One final thought…
People will work hard for a paycheck,harder for a person,
and hardest for a reason.
