Bleak prospects in the pipeline for chemical CEOs

Published at 09:54 AM on 03 February 2009

CEOs in the chemicals industry are less confident about growth prospects than ever, according to PricewaterhouseCoopers latest CEO survey. Only 17% of chemical company leaders are very confident that they can increase revenues over the next 12 months, compared with 39% in PwC’s CEO survey last year.

This fall in confidence levels, expressed by our sample of 48 chemicals industry CEOs, is not surprising given that the chemicals industry is currently contending with the fallout from hurricanes Gustav and Ike, rapidly deteriorating global credit markets and the threat of a deep global recession. Moreover, two of its key groups of customers, the automotive and construction sectors, are among those likely to be most severely affected by the downturn.

In addition to weakened demand, financing is a key concern, with 65% of respondents concerned that the disruption of the capital markets will affect their own expansion plans. More than two-thirds of chemicals CEOs anticipate that financing costs will increase and that they will have to delay some of their investments.

In terms of cost-cutting, 35% of chemical CEOs anticipate that they will have to reduce the number of people they employ over the next 12 months. This is higher than leaders in other industries – 26% of the overall CEO survey population. But the chemicals industry is heavily reliant on the development of new products and ideas – and it is people, not systems or processes, who generate innovation – so these CEOs will have to be very careful about how they implement such reductions.

Saverio Fato, global chemicals leader, PricewaterhouseCoopers commented:

“Every chemicals industry CEO will need to make tough decisions about what actions are required to ensure their company’s short-term survival. Retaining the right skills to deliver long-term business growth is essential, and companies that cut back too far now may struggle to take advantage of the economic recovery, when it occurs."

“Business models in the industry will need to continue to evolve. Commodity chemicals companies will follow speciality manufacturers by getting even closer to their customers; Chinese and Middle Eastern companies will buy into new markets or technologies; and almost all companies will need to adopt sustainable business solutions.”

On a positive note chemical CEOs are actually less pessimistic than their peers in the overall survey sample of 1,124 CEOs from a range of industries. Chemical CEOs are less likely than their peers in other industries to be planning a reduction in the development of new products and services as a result of the current financial crisis. Chemical leaders see new products as absolutely critical to the long-term viability of their companies. Some 33% of chemicals CEOs are also planning to complete a cross-border merger or acquisition over the next 12 months, compared with just 25% of the total survey population.

Volker Fitzner, global chemicals advisory leader, PricewaterhouseCoopers, commented:

“While the economic downturn has significantly affected the large deal market, the small to mid-sized deal market remains relatively strong, as companies look for bolt-on acquisitions to strengthen their existing positions and dispose of assets that do not meet their internal performance levels."

“We expect to see additional deal activity driven by distressed companies requiring capital in order to restructure or continue operating during the bankruptcy process. The reduced valuation level in the markets could be seen as a chance for Chinese and Middle Eastern chemicals conglomerates to expand into speciality chemicals and pick up entire companies or minority stakes.”


Notes to Editors:

For more details or a copy of the report please visit www.pwc.com/ceosurvey 


For more information contact:

Vanessa Shaw
Consumer and Industrial Products & Services PR Manager, PwC 
Tel:020 7212 1002 
Mobile:07989 572 425 

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