CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company

is strictly prohibited

March 30th, 2020

Virtual roundtable – post-event summary

Value Creation and Transformation in Advanced Industries

McKinsey & Company 2

Attendees (1/3)

March 30, 2020

Paula HJ CholmondeleyCEO at The Sorrel Group, BoD – Nationwide Mutual Funds,

Terex Corp., Bank of the Ozarks

Tony EarleyBoD – Ford, Southern Company

Jim BemowskiBoD – Hyster-Yale Material Handling

William J. AmelioCEO of Avnet, BoD– S&P Global

Martin FlemingVice President and Chief Economist – IBM Corp

Dave BurrittPresident and CEO – United States Steel Corp

Deborah A. FarringtonCo-Founder and Managing Partner – StarVest Partners and BoD

NCR

Samih ElhageSenior Advisor – McKinsey & Company and to Madison

Dearborn Partners; BoD – Cogeco

Bob BruggeworthPresident and CEO of Qorvo, BoD – MSA Safety,

Semiconductor Industry Association

Lynda ClarizioBoD – CDW

McKinsey & Company 3

Attendees (2/3)

March 30, 2020

Kathleen LigockiBoD – Lear Corporation, Carpenter Technology, Farmers

Business Network

Betsy HoldenBoD – National Retail Properties, Western Union, Dentsply

Sirona

Mike NevensChairman – NetApp,

BoD – Ciena, Senior Advisor – Permira

Robert HanserBoD – LKQ Corporation, Hitched Holdings

Kai Haakon E. LiekefettPartner and Co-Chair – Sidley’s Shareholder Activism

Practice

Linda Fayne LevinsonChair of the Board – Hertz, Ind. Lead Director – Jacobs

Engineering Group and a Director of Ingram Micro, and NCR

Sanjay MehrotraCEO – Micron Technology

Frank JaehnertBoD – Nordson Itron, Briggs & Stratton, NMLP

Tom GrecoPresident and CEO – Advance Auto Parts

Jonathan GrahamPartner in Industrial Practice – Heidrick & Struggles

McKinsey & Company 4

Attendees (3/3)

March 30, 2020

Sheila TaltonBOD - Deere & Company, OGE Energy Corporation, Sysco

Corporation; President and CEO – Gray Matter Analytics

Dominick ZarconePresident & CEO – LKQ Corporation;

BoD – Generac Power Systems

Cindy NiekampBoD – Ball Corporation, Magna International

Neil NovichBoD – Grainger, Analog Devices,

Leslie VaronBOD – Dentsply Sirona

McKinsey & Company 5

Institutions represented

>1.5 Million Employees

>$100 Billion EBITDA

>$600 BillionRevenue

>$1 TrillionMarket Cap

20% to 80%% Decline in Stock Price after

COVID-19

McKinsey & Company 6

Your McKinsey Partners

Asutosh Padhi

Senior Partner, Chicago

Global leader Advanced

Industries

Sven Smit

Senior Partner, Amsterdam

Leader McKinsey Global

Institute

Nick Santhanam,

Senior Partner, Silicon Valley

Americas leader Advanced

Electronics & Semiconductors

Jannick Thomsen

Partner, New York

Leader Strategy and

Corporate Finance

Harsha Krishnamurthy

Partner, Chicago

Leader Operations and

Advanced Analytics

Susan Lund,

Partner, Washington DC

Leader McKinsey Global

Institute

Varun Marya

Senior Partner, San Francisco

Americas leader Aerospace &

Defense

McKinsey & Company 7

COVID-19 is, first and foremost, a global humanitarian challenge.

Thousands of health professionals are heroically battling the virus, putting

their own lives at risk. Governments and industry are working together to understand and

address the challenge, support victims and their families

and communities, and search for treatments and a vaccine.

Companies around the world need to act promptly.

This document is meant to help senior leaders understand the COVID-19 situation and

how it may unfold, and take steps to protect their employees, customers, supply chains,

and financial results.

Read more on McKinsey.com

McKinsey & Company 7

Current as of March 25, 2020

McKinsey & Company 8

Market capitalization declined across sectorsWeighted average year-to-date local currency total shareholder returns by industry in percent1. Width of bars is starting market cap in $

-20

-50

-30

-40

0

-10

-45

-35

-25

-15

-5

Source: Corporate Performance Analytics, S&CF Insights, S&P Global

Oil & Gas

Air & Travel

1. Data set includes global top 3000 companies by market cap in 2019, excluding some subsidiaries, holding companies, companies with very small free float and companies that have delisted since

AS OF MARCH 25 2020

BanksAutomotive

& AssemblyRetail

Advanced

ElectronicsPharma

Electric Power

& Natural Gas

Basic

Materials

Commercial

Aerospace Defense

Transport &

Infrastructure

McKinsey & Company 9

The hardest hit sectors may not see restart until 2021Preliminary views of hardest hit sectors based on delayed recovery scenario - subject to change

Current as of March 25, 2020

Source: IHS Market, McKinsey Global Institute, Subject matter experts, press reports, Corporate Performance Analytics, S&CF Insights, S&P Capital IQ

Estimated

global restart

Industry specific

examples

Avg. change in

stock price

Longest

Automotive

Q3 2020

-35%

Existing

vulnerabilities

amplified by acute

decline in

Chinese demand

Headwinds to

persist given tight

inventories and

supply chain

complexity

Oil and gas

Q3 2020

-48%

Oil price decline

Oversupply

expected to

remain in the

market even after

demand

recovery,

Air & Travel

Q1 / Q2 2021

-51%

Deep, immediate

demand shock

Recovery pace

faster for domestic

travel

Aerospace/defense

Q3 / Q4 2021

-47%

Aircraft delivery

shocks

Aftermarket

maintenance will be

deeply impacted

Advanced

Electronics

Q3 / Q4 2020

-26%

Price increase on

components

Delayed R&D or

product launch

Late delivery and

installation of

equipment

Limited technical

support for

customers

McKinsey & Company 10

The Imperative of our Time“Timeboxing” the Virus and the Economic Shock

Source: McKinsey analysis, in partnership with Oxford Economics

~ -8 to -13%

Economic

Shock

1a1b

1c

2a

2b

2c

Imperative 1: Safeguard Our Lives

1a. Suppress the virus as fast as possible

1b. Expand treatment and testing capacity

1c. Find “cures”; treatment, drugs, vaccines

Imperative 2: Safeguard Our Livelihoods

2a. Support people and businesses affected by

lockdowns

2b. Prepare to get back to work safely when the

virus abates

2c. Prepare to scale the recovery away from a

-8 to -13% trough

McKinsey & Company 11

Virus contained, but sector damage;

lower long-term trend growth

Virus recurrence; slow long-term growth

Pandemic escalation; prolonged

downturn without economic recovery

Virus contained, growth rebound

Virus recurrence; slow long-term growth

Muted World Recovery

Pandemic escalation; slow progression

towards economic recovery

Virus contained; strong growth rebound

Virus recurrence; return to trend growth

Strong World Rebound

Pandemic escalation; delayed but full

economic recovery

A3

A1 A2

A4B1

B2

B3 B4 B5

Scenarios for the Economic Impact of the COVID-19 CrisisGDP Impact of COVID-19 Spread, Public Health Response, and Economic Policies

Virus Spread & Public Health Response

Effectiveness of the public

health response

in controlling the spread

and human impact

of COVID-19

Effective Response, but

(regional) Virus recurrence

Public health response initially succeeds

but measures are not sufficient to prevent

viral recurrence so social distancing

continues (regionally) for several months

Broad Failure of

Public Health Interventions

Rapid and effective

Control of Virus Spread

Strong public health response succeeds

in controlling spread in each country

within 2-3 months

Public health response fails

to control the spread of the virus

for an extended period of time

(e.g., until vaccines are available)

Knock-on Effects & Economic Policy ResponseSpeed and strength of recovery depends on whether policy moves can mitigate

self-reinforcing recessionary dynamics (e.g., corporate defaults, credit crunch)

Ineffective

Interventions

Policy responses partially offset

economic damage; banking crisis

is avoided; recovery levels muted

Partially Effective

Interventions

Self-reinforcing recession dynamics

kick-in; widespread bankruptcies and

credit defaults; potential banking crisis

Strong policy responses prevent

structural damage; recovery to pre-

crisis fundamentals and momentum

Highly Effective

Interventions

McKinsey & Company 12

Scenario A3Virus containedReal GDP, Local Currency Indexed

105

100

110

85

95

90

Q2 Q3 Q4Q3Q1 Q4 Q4Q2Q1 Q3Q2Q1

Real GDP Growth – COVID-19 CrisisLocal Currency Units Indexed, 2019 Q4=100

Eurozone

United states China1

World

2019 2020 2021

Source: McKinsey analysis, in partnership with Oxford Economics

1. Seasonally adjusted by Oxford Economics

-3.3% 2020 Q3-0.4%China

-8.0% 2020 Q4-2.4%USA

-4.9% 2020 Q4-1.5%World

-9.5% 2021 Q1-4.4%Eurozone

Time to Return

to Pre-Crisis

Quarter

Real GDP Drop

2019Q4-2020Q2

% Change

2020 GDP

Growth

% Change

McKinsey & Company 13

Scenario A1 Muted RecoveryReal GDP, Local Currency Indexed

110

100

85

90

105

95

Q2 Q2Q1 Q3 Q4 Q1 Q3 Q4 Q1 Q2 Q3 Q4

Real GDP Growth – COVID-19 CrisisLocal Currency Units Indexed, 2019 Q4=100

World

China1United states

Eurozone

2019 2020 2021

Source: McKinsey analysis, in partnership with Oxford Economics

1. Seasonally adjusted by Oxford Economics

-3.9% 2021 Q2-2.7%China

-10.6% 2023 Q1-8.4%USA

-6.2% 2022 Q3-4.7%World

-12.2% 2023 Q3-9.7%Eurozone

Time to Return

to Pre-Crisis

Quarter

Real GDP Drop

2019Q4-2020Q2

% Change

2020 GDP

Growth

% Change

McKinsey & Company 14

0

-25

-30

-20

-15

-10

-5

19301900 1910 1920 1940 1950 1960 1970

-8%

1980 1990 2000 2010 2020

-13%

COVID-19 US impact could exceed anything since the end of WWII

Source: Historical Statistics of the United States Vol 3; Bureau of economic analysis; McKinsey team analysis, in partnership with Oxford Economics

Scenario A1

Scenario A3

Pre-WW II Post-WW II

United States Real GDP

%, total draw-down from previous peak

McKinsey & Company 15

Planning ahead for the imperative now

Insights team focused on finding the truth

Operations team focused on delivering effects

Plan ahead team focused on creating future scenarios

Inform and instruct team focused on ensuring that everyone knows and does

what they are supposed to do

4 separate teams – inspiration from the army

McKinsey & Company 16

Companies in advanced industries need to think and act across five horizons

Resolve Resilience Return Reimagination Reform

Address immediate

challenges that COVID-19

represents to workforce,

customers, and partners.

E.g.,

Establish nerve center

to steer organization

Screen and safeguard

global supply chains

Monitor indicators such

as reductions in spend

on durable goods

Address near-term cash-

management challenges

and broader resiliency

issues during virus-related

shutdowns. E.g.,

Set up “cash war

rooms”

Move faster on

productivity to

preserve growth

capacity

Create plan to return

business to scale quickly

and safely as COVID-19

situation evolves. E.g.,

Match volume to actual

demand

Monitor global supplier

networks to ensure

readiness

Redesign workspaces

to further limit viral

spread and maintain

worker safety

Reimagine the next normal:

what a discontinuous shift

looks like and implications

for how institutions should

reinvent. E.g.,

Shift towards redundant

sourcing

Consider shifting more

business to ecommerce

Seek M&A opportunities

given historic lows in

market capitalization

Be clear about how

regulatory and

competitive environments

in industry may shift. E.g.,

Increasing workforce

flexibility including

remote work and

flexible hours

Increasing resilience in

supply chains such as

“local-to-local”

sourcing

1 2 3 4 5

Here’s how it applies to automotive and industrial companies

McKinsey & Company 17

Questions

The path to the next normal and

how we can navigate to what’s

next

1 Resolve: How do we determine the scale and pace of action

required? Can Chinese consumer data help predict

rebound in the US and EU?

2 Resilience: Can we move faster on productivity? Can we build

resiliency dashboards of leading indicators?

3 Return: What can we learn from AI players already ramping

back up to safely restart production facilities? How do

we match volume with actual demand?

4 Reimagination: How might our go-to-market approaches change (will

there be greater emphasis on rentals and leasing)?

Can we shift from fixed to variable costs?

5 Reform: How can we shift our globalized supply chains to

more local sourcing?

McKinsey & Company 18

Featured insights

Safeguarding our lives and our

livelihoods: The imperative of our

time focusing on the impact of

the health driven response to the

virus and the impact of the

corresponding policy responses

on the economy.

Beyond coronavirus: The path to

the next normal, that sets out the

5 steps that leaders must

navigate to get from today to the

economy that will exist after the

battle against COVID-19 has

been won.

Coronavirus: Five strategies for

industrial and automotive

companies, that lays out actions

that Advanced Industries

companies must undertake to

rebound from the coronavirus

pandemic

Other insights on how organizations can respond, and what happens next can be found here

McKinsey & Company 19

Next session:

May 4th – 2pm CT / 3PM ET

McKinsey & Company 20

Your McKinsey organizing team

Mark Sawaya

Engagement Manager,

Cleveland

Advanced Industries

Kate Pancratz,

Executive Assistant,

Chicago

Advanced Industries

Jesse Salazar

External Relations

Manager, Washington DC

Advanced Industries

Gitanjali Bakshi

Communications Specialist,

Atlanta

Global Communications

Kristy Shelley

Practice Manager, Detroit

Advanced Industries