Based on a recent survey of 48 chemicals industry CEOs by consulting firm PricewaterhouseCoopers (PwC), this gloomy state of affairs is not likely to improve anytime soon. According to PwC's 12th Annual Global CEO Survey, only 17% of chemical company leaders are very confident that they can increase revenues over the next 12 months. The confidence level of CEOs in the chemicals sector has apparently fallen because 39% expressed the same sentiment in the previous year's survey.
"Every chemicals industry CEO will need to make tough decisions about what actions are required to ensure their company's short-term survival," Michael Clifford, Leader of the PwC Canada Chemicals Practice, said in a company statement. Indeed, 35% of chemical CEOs surveyed expect to reduce the number of people they employ over the next 12 months.
Clifford cautioned, however, that corporate leaders will need to strike a balance between lowering costs in the near term and ensuring their competitiveness when market conditions improve. He pointed out that the chemicals industry is particularly reliant on developing new products and ideas. People, rather than systems or processes, are the driving force behind this innovation, he explained. "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," Clifford said.
Aside from foreseeing additional job cuts over the next year, the majority of chemical industry CEOs surveyed (65%) fear that the disruption of capital markets will hinder their expansion plans. According to PwC, more than two-thirds of respondents in the sector expect financing costs to rise; as a result, these CEOs anticipate delaying some of their investments.
PwC also reported that one-third of the survey respondents -- particularly those with small- to medium-sized companies -- plan to complete a cross-border merger or acquisition during the next 12 months. "While the economic downturn has significantly affected the large 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," Clifford explained.
Clifford predicted that distressed companies will drive additional deal activity because these companies need capital 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 specialty chemicals and pick up entire companies or minority stakes," he concluded.
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