Chemicals companies to focus on M&As, new products to boost growth: KPMG

In the face of escalating input costs, stiffer competition, and a struggling global economy, chemical industry executives say they will use the significant cash on their balance sheets to pursue strategic acquisitions and new product development to spur company growth, according to a recent survey from KPMG International. 

In the KPMG Global Chemicals Industry Outlook Survey of 156 senior level chemical executives in the US, Europe and Asia-Pacific, 72 percent of industry executives indicate that their companies have significant cash on the balance sheet – up from 70 percent in KPMG's 2011 survey – and more than half (51 percent) say their companies' cash positions have improved from last year. 

As per the survey the emerging-market growth by region, China and India were cited as the two greatest areas for market growth. However, the Middle East placed ahead of Brazil, perhaps reflecting recent weak economic performance of the Brazilian economy combined with strength of the Real.

''India remains a key consumption market for global chemical players as demonstrated by recent expansions announced. We are also witnessing increasing demand for specialty chemicals especially around end user industries like pharmaceutical, cosmetics, and food,'' says Vikram Hosangady, head, transaction services, KPMG in India.

''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 Technologies practice and a partner in the US firm.  ''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.''

Sixty-three per cent of all executives plan to increase capital spending over the next year. For the second year in a row, 100 per cent of the respondents in Asia-Pacific predicted an increase in capital spending, versus 79 per cent in the U.S. and 58 per cent in Europe.

Investing in Growth
The highest priority investment areas are new products or services (35 per cent), and the acquisition of a business (33 per cent). U.S. executives (42 per cent products; 45 per cent acquisition) indicate that they plan to be much more aggressive investing in these respective areas than their Asia-Pacific (26 per cent products; 23 per cent acquisition) and European (36 per cent products; 32 per cent acquisition) peers.