Chemical industry executives plan to soon use the
significant cash on their balance sheets to pursue strategic
acquisitions and new product development to spur company
growth, according to a survey released Tuesday by US advisory
growth comes despite escalating input costs, stiffer
competition, and a struggling global economy, KPMG said.
In the survey of 156 senior level chemical executives in the
US, Europe and Asia-Pacific, 72% of industry executives
indicate that their companies have significant cash on the
balance sheet - up from 70% in KPMG's 2011 survey.
More than half (51%) say their companies' cash positions
have improved from last year.
Despite economic headwinds, the chemicals sector has
experienced some positive momentum in the past year, said
Mike Shannon, global leader of KPMG's chemicals and performance
The improved cash positions at many of these companies
will allow them to be more aggressive to drive growth and
innovation - both organically and inorganically, he
Among executives, 63% plan to increase capital spending over
the next year, including 81% of respondents in the Asia-Pacific
region. That compares with 48% in the US and 58% in Europe.
Investing in growth
The highest priority investment areas are new products or
services (35%), and the acquisition of a business (33%),
according to the survey.
US executives (42% products; 45% acquisition) indicate that
they plan to be much more aggressive investing in these
respective areas than their Asia-Pacific (26% products; 23%
acquisition) and European (36% products; 32% acquisition)
peers, KPMG said.
Overall, chemical executives are telling us that they
intend to put their money to work and boost investment in key
areas, said Shannon.
With the struggling global economy, organic growth is
a challenge and input prices continue to impact production
costs. All of these factors set the stage for aggressive
M&A and product development strategies as companies look to
gain an edge.
Ninety percent of executives indicate that their companies
are likely to be involved in a merger or acquisition in the
next two years - up from 83% in KPMGs 2011 survey.
respondents in the US were most bullish on being buyers (48%)
while European respondents were the most likely sellers
Executives also identified technology (29%) and geographic expansion (27%) as significant areas
of investment for their companies, according to the survey.
Respondents in Asia-Pacific had the highest expectations for
investment in technology (42%), and European executives (36%) plan to
increase investment in geographic expansion the most.
As for where they intend to deploy that capital over the
next two years, global chemical executives cite China, the US,
and Europe as the geographic regions that will be the focus of
However, when analyzing the individual regional responses,
US and European executives showed a much stronger preference
for domestic investment. China remained a favored investment
location for executives in all three regions, according to the
Fragile economic fundamentals
Despite the strong focus on growth and expansion, the macroeconomic environment is far more of a worry
for executives than this time last year, KPMG reports.
Executives in Europe and the US are more concerned
about the state of the global economy than their counterparts
in Asia, said Paul Harnick, KPMG's global chief operating
officer for the chemicals and performance technologies
Balancing potential global economic risks with the
need to expand into new products and markets to capture growth
will be key to success.
Less optimistic views on revenue and hiring
Among executives surveyed, 68% expect revenue to increase next
year - down from 85% in the 2011 survey.
Executives in the US were the most bullish in their revenue
projections, with 73% expecting
revenue to increase next year, down slightly from 77% in
Expectations for increased revenue among the Asia-Pacific
and European executives decreased substantially in the 2012
survey - Asia-Pacific (69% vs. 96% in 2011) and Europe (60% vs.
82% in 2011).
Ongoing business challenges such as the prolonged
economic crisis, volatile input prices and increased pricing
pressures are dampening executives' expectations, said
Executives also appear less optimistic on hiring, with 65%
saying headcount will increase next year - down from 73% in
Asia-Pacific was most bullish, with 77% expecting to add
headcount, followed by Europe at 58% and the US at 56%.
In the US, 21% of executives actually expect to decrease
headcount in the next year, up from 14% in 2011.