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PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel


The post crisis, the crisis, and the time prior to the crisis Broad agreement: The world after the crisis will not look like before. The visible side of the crisis. Financing difficulties: Inside the financial institutions themselves. For corporations, especially those that followed a specific financial philosophy, miscalculating the acceptable rate of growth and getting too indebted in the short term. Theoretical business of finance in question. Real economy consequences: Temporary (but by no means permanent) draught of projects. Short-term increase in competition with distorting low-price bids from stressed competitors. But the time prior to the crisis was itself a period of deep and not always rationalized change. The crisis might be seen as both a concluding and an inaugural event. Market trends in industrial projects prior to the crisis Over the last 25 years, the client requests have drastically changed. Breakdown of the classical model: the client as integrator of its own projects. The new requests: the client buys only customized finished products. New large geographical areas develop as new markets. In spite of short-term turbulences, the futureif not a rosy short termappears bright for the countries where substantial economic action is going to unfold, and for corporates of any country that can contribute positively to this development process: not conquer but contribute. The consequent evolution of the industry structure of the industrial development business

PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel

Former participants in the industry find it hard to sell their specialty isolated from others. The sale requires integration of ones own product in more complete packages where mastering a whole range of skills is necessary. Fierce competition goes along with a substantial need of cooperation through a lot of business alliances. Often competitors are absolutely noncomparable. The emerging winner in the industry is the efficient integrator of multiple specialties, the EPC contractor: experts in complexity. But, till now, no agreement on the benchmark business model yet: lack of or disagreement about established references in a world for innovators. Duro Felguera pre-crisis One hundred and fifty years old. One hundred years in the stock exchange. Most of its life a typical industrial conglomerate: owner of mines, steel plants, shipyards, power plantswith 35,000 employees. For the last 30 years, the profit of industrial activities has been decaying in the Western world: survival not guaranteed, flashes signal that survival is not guaranteed. A long time ago DF undertook the process of divestment with dramatic reduction in size and structure while keeping a high density of skills and know-how. A controlled implosion in response to a chronic crisis of the Western industry resulting in a small size company with direct expertise in engineering, manufacturing, erection, operation and maintenance in a wide range of fields: energy generation, mining, harbor development, steel fabricationwith 2000 employees: a service company ready for growth based not on physical investments but on skills. DFs business model A creative combination of management techniques: Production: the opposite of conventional outsourcing. Financing: the financial turnkey approach. Commercial reach: a different specific understanding of what being global means. Human resources: customized training path. Technology: state-of-the-art expertise not requesting investment. Cold professional risk control to volatile, emotional, risk concerns.

PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel

DFs business model: Production DF would never outsource the management of its financial information system and human resources, which are the core instruments of its activity, to a third party. Conversely, DF subcontracts between one hundred and one hundred fifty suppliers per project, while its own contribution is limited to project management. As a result, DF puts in place the fire power of a large multinational while being itself a small cap company. DF has proved its efficiency in dealing with such complex situations in fifty-four joint ventures with joint and several responsibilities with several of the largest technological multinationals of the world in energy generation. DFs business model: Commercial reach. A different concept of global DF does not consider it necessary to own an extended network of permanent subsidiaries in the world to grow. DF sells established third-party networks: recurrent partners, consultants, traders, global banks, working on a success fees basis. In general, a concept of global different from mere geographical multipresence. Being global understood as possessing a number of skills that make it possible to operate efficiently in any part of the world. A very efficient commercial network managed from a small governing nucleus company with no structure. DFs business model: Finance DF uses the supply chain finance concept and does not enter a project without insuring that clients and suppliers have the financial means necessary for success. The cornerstone is the guarantee that the client has the requested financial means acceptable to banking institutions: DF arranges buyer credits with different guarantee structures: trade finance, ECAs. Once counterparty risk and performance risk are sufficiently covered, it is easy to acquire the financial products needed by the client, DF and its suppliers, as a package: a financial turnkey concept. DFs business model: Human resources, technology and procurement Human resources: the limiting factor for growth is the availability of experienced project managers. DF has developed for years its own training programs for professionals entering the fields: six months of multidisciplinary classroom training, six months of apprenticeship and then joining the company. Seventy executives, including a minor but direct

PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel

participation of the Chairman and CEO, teach the courses. A huge investment of time and dedication. Technology: DF is a specialist in maintenance of sophisticated technology equipment. This provides DF with the availability of hundreds of workers familiar with state-of-the-art technology without the effort and risks of developing frontier products. Procurement: DF has developed over the years a strong procurement capacity worldwide. DFs business model: Summary The changing environment has pushed DF through a hard and individual crisis process to: Be able to put in place in any industrial project the capacity of a big multinational while being small. Have several worldwide commercial networks without any cost except success fees and compatible with keeping small. Arrange structured financings of almost any size, for clients, suppliers and itself. Generate its own human resources of top quality. Possess the skills to operate in several industrial fields and in many parts of the world with proven quality guarantee. DFs business model breaks the traditional correlation between size of the company and efficiency in developing very large projects in worldwide markets. A company used to survive, develop and grow in a world of latent or open crisis. Professional risk control far from bureaucratic risk obsession DF understands risk control as a professional discipline and does not share risk obsession. Friendly attitude to controlled risks and total rejection of situation not thoroughly analyzed. Extensive simulation of projects and careful stress test study of legal and fiscal local matters: full adaptation in respect to local issues. The response to the problems requires specific answers. The answers may be different but the set of problems remains the same in any area of the world.

PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel

Consolidated trends: the last few years performance

Ireland U.K.
L o ng Beach ( USA


Italy Greece Turkey Chicago Spain Iran Houston Israel Oman Orlando Abu Dhabi Venezuela Saudi Arabia Brazil Peru

The Netherlands

Japan India


Argentina Projects Commercial offices Commercial Agents



1,003 726 760 80


328 225 501 228 532 675 337 194 467


235 159





2009 1Q2010



PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel

2,324 1,266



1,935 1,787

528 531 971 1.187 738 579 278 389

2005 2006 2007 2008 2009 1Q2010

Domestic International

PRETAX PROFIT 80.0 70.4 60.1 40.0 20.6 22.9








PanamericanSuretyAssociationXXIIGENERALASSEMBLYBEIJINGTuesday,May25 Conference:Contractorsinfaceofthefinancialcrisis:aninnovativemanagementmodel

Assets Noncurrent assets Properties Current assets Cash and cash equivalents 1Q2010 2009 Var %

158,662 113,371 941,185 374,291

156,732 111,602 986,251 346,072

1.23% 1.59% -4.57% 8.15%

Total equity and liabilities Equity Capital Grants Noncurrent liabilities

Noncurrent long-term financial debt

203,516 9,921 85,484 67,550 800,926 18,151

186,764 10,076 76,169 57,795 869,974 31,549

8.97% -1.54% 12.23% 16.88% -7.94% -42.47% -3.77%

Current liabilities

Some views about the crisis

Current short-term financial debt

TOTAL 1,099,847 Uncertainty is the name of the game. *In thousand euros


No use in looking every five minutes at the screen following expectations of sudden solutions to the problems. Calm reactions (when possible) to short-term events, long-term attitude. Long-term attitude: adapting policies for survival. Conservative cash management, careful selection of the rate of growth, if any, being ready to introduce major changes, but on the basis of confirmed trends, and not volatility. Survival pressures should not kill the concern about a redefinition of the company for the world post-crisis: companies able to survive the crisis are strangled by the new environmental changes afterwards. Be lucky.