Chemical industry executives plan to soon use the
significant cash on their balance sheets to pursue strategic
acquisitions and new product developments to spur company
growth, according to a survey released by US advisory firm
The 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 sheetup from 70% in KPMGs 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 KPMGs chemicals and
performance technologies practice. The improved cash
positions at many of these companies will allow them to be more
aggressive to drive growth and innovation, both organically and
Among executives, 63% plan to increase capital spending over
the next year, including 81% of respondents in the Asia-Pacific
region. This compares with 48% in the US and 58% in Europe.
Most of the executives polled looked to 2013 or 2014 for a
peak in chemical sales volume (Fig. 1).
However, this subject indicated a developing and sustained
trend, which was that US executives were consistently more
pessimistic across the board than their counterparts in the
rest of the world. Many of the US executives expected it to
take at least three years before their companies could return
to previous sales volumes.
Fig. 1. Projections for
greatest sales volumes;
survey responses from 2011 to 2015 and
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% acquisitions) indicate that
they plan to be much more aggressive investing in these
respective areas than their Asia-Pacific (26% products; 23%
acquisitions) and European (36% products; 32% acquisitions)
peers, KPMG said.
Overall, chemical executives are telling us that they
intend to put their money to work and boost investment in key
areas, Mr. Shannon said. 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 merger and acquisition (M&A) and
product development strategies as companies look to gain an
Ninety percent of executives indicate that their companies
are likely to be involved in a merger or an acquisition in the
next two years, which is up from 83% in KPMGs 2011
Once again, respondents in the US were most bullish on being
buyers (48%), while European respondents were the most likely
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 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 more of a worry for
executives than at this time last year, KPMG reported.
Executives in Europe and the US are more concerned
about the state of the global economy (Fig. 2)
than their counterparts in Asia, said Paul Harnick,
KPMGs global chief operating officer for the chemicals
and performance technologies practice. Balancing
potential global economic risks with the need to expand into
new products and markets to capture growth will be key to
Overall, 45% of respondents worldwide stated that the global
economy would improve moderately in 2013. Surprisingly, the
greatest optimism was in Europe, with 54% of the respondents
looking forward to a moderate improvement.
Fig. 2. Chemical company
asked, A year from now, what are
expectations for the economy? Their
from 2011 and 2012 are presented in Fig. 1.
Less optimistic views on revenue and hiring
Among executives surveyed, 68% expect revenue to increase
next yeardown 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 Asian-Pacific
and European executives decreased substantially in the 2012
surveyAsia-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,
Mr. Harnick said.
Fig. 3. Expectations for
hiring: Results of how
the executives expected companies
headcounts to change in one year.
Executives also appear less optimistic on hiring, with 65%
saying headcount will increase next year (Fig.
3), down from 73% in 2011. 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