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Survey Shows Chemical Companies Priorities for Year Ahead
Posted: November 24, 2010
Despite an economy that remains sluggish overall, a majority of senior executives in the chemical industry expect their companies to be back to pre-recession revenue levels by the end of this year, and four out of ten expect their companies to be involved in some sort of merger-and-acquisition activity within the next 12 months. However, according to a recent survey, it’s not at all clear that chemical companies are effectively employing the right operational tools and methods to achieve the kind of growth they want to achieve now that they’re finally getting back to even. The survey involved 88 chemical-company CEOs, presidents and other senior-level executives and was commissioned by AlixPartners LLP, a global business-advisory firm.
“When the economy turned south a couple of years ago, chemical companies—especially compared to companies in many other industries—responded quite well by cutting costs and driving leaner operations,” said Bob Sullivan, managing director of AlixPartners and co-lead of the firm’s Global Chemical Industry Practice. “And of course, there are still benefits to be realized on that front, as there always is in any industry. But the name of the game now is the top line—everything from improving pricing, to improving customer relationships, to improving employee productivity. That’s where chemical companies are going to sink or swim from here on out. However, at this point it would appear that many are content to just tread water.”
The survey found that 53% of companies expect to reach pre-recession revenues by the end of 2010, and 42% of respondents said they think it’s either “very” or “somewhat” likely their companies be involved in a major acquisition, merger or takeover in the next 12 months, and for executives from large chemical companies that number was 54%. Moreover, about three out of five respondents said their companies’ performance in profit growth has increased during the past three years. However, those companies without formal growth targets were less likely to report an increase—55% of companies with no or informal growth targets reported an increase in profit growth, versus 62% of companies with formal, measurable growth targets.
“As in chemistry itself, coming up with the right mix of elements to spur growth in the chemical industry, be it organic growth or acquisitive growth, is a delicate balance,” said Mike Sinoway, managing director of AlixPartners and leader of the firm’s Global Growth Services Practice. “And achieving that right balance is nearly impossible without crystal-clear visibility into both your market and inside the operations of your own company.”
The survey also found chemical-processing companies see the year ahead as indeed being very much a growth-oriented one. When asked to name their top three priorities for the next 12 months, 43% cited innovation and 40% said revenue growth. By comparison, just 34% cited cost reduction. Additionally, despite the apparent interest in M&A in the year ahead, 56% of said they view organic growth as either a “critical” or “major” revenue engine as well.