71% of European chemical companies looking to embark on M&A in next two years
63% favour China as top destination for investment
82% of European chemical executives expect revenue to increase next year
European chemical companies have called the end of the downturn in their market and are now on an aggressive growth drive with more than two-thirds of executives looking to buy another business, according to a survey out today examining confidence amongst the world’s biggest chemicals players by KPMG.
While they still face a difficult market context of escalating input costs, stiffer competition, and a struggling global economy, the KPMG survey of 142 director level or above executives in the U.S., Europe and Asia-Pacific, found that 70% had large cash balances. At the same time, 82% of those interviewed from Europe were optimistic about revenue growth next year, and the two factors together meant they were keen to put their money to work.
Paul Harnick, KPMG’s Global COO for Chemicals and Performance Technologies, said: “Chemical executives are telling us that they are in aggressive growth mode, and that they intend to boost investment in strategic acquisitions, product development and innovation, and expansion into new markets. However, European executives are far more concerned than their US and Asian counterparts about the state of the global economy and the impact of volatile raw material prices on their supply chain. The companies that best balance these conflicting dynamics will be those that gain an edge.”
Two-thirds of all chemical executives surveyed said their companies would be involved in a merger or acquisition as a buyer in the next two years. European executives appeared the most bullish, with 71% saying they would be buyers and 63% favouring China as a focus for investment, despite Asia having the highest proportion of respondents with significant cash on their balance sheet (76% compared to 61% of European respondents).
When asked about the biggest drivers of revenue growth over the next three years, chemicals executives cited international expansion, new product development, acquisitions/joint ventures, and organic growth, but the top drivers differed in each region. In the U.S., acquisitions/joint ventures and new products topped the list, while European executives cited market expansion, and Asian executives cited new products and organic growth.
The survey demonstrates that international expansion will be heavily focused on emerging markets as whilst only 42% of executives said that emerging markets currently account for more than 30% of their company’s revenues, 61% expect emerging markets to account for at least 30% of revenues by 2015. This change is most marked amongst European respondents, with just 24% currently claiming more than 30% of revenues from emerging markets compared to 64% projecting that proportion by 2015.
Amid all the positive news, executives across all regions remained mindful of the difficult market climate and volatile input prices. This note of caution was most market amongst European executives, 68% of whom cited rising commodity costs as the biggest risk to their supply chain, and who were the most downbeat about the prospects of an economic recovery in the short term (just 34% of European respondents thought a recovery was likely by the end of 2012, compared to 49% of Asian respondents and 45% of the U.S. executives). This short term caution was reflected in European respondents expecting sales volumes to be at their greatest from 2015 and beyond (45%), whilst the highest proportion of Asian and U.S. executives expect the spike to come in 2012 (39% and 34% respectively).
Harnick continued: “Whilst there remain short term headwinds, more than two thirds of companies across all regions have significant cash which they are now seeking to invest in organic and acquisitive expansion, as they look to the medium term and the opportunities in emerging markets with renewed confidence. Balancing the potential global economic risks with the need to expand overseas to capture growth will be key to the success of European and US companies.”
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THE KPMG CHEMICAL INDUSTRY PULSE SURVEY
The KPMG survey was conducted in June 2011 and reflects the responses of 142 senior executives in the Chemical industry – 53 in the U.S., 38 in Europe, and 51 Asia-Pacific. Based on revenue in the most recent fiscal year, 20% of respondents work for institutions with annual revenues exceeding $10 billion, 46% with annual revenues in the $1 billion to $10 billion range, and 34% with revenues in the $100 million to $1 billion range.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.