<div>In face of escalating input costs, stiffer competition and a struggling global economy, chemical industry executives will start using 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. <br /><br />In the KPMG Global Chemicals Industry Outlook Survey of 156 senior level chemical executives in the US, Europe and Asia-Pacific, 72 per cent of industry executives indicate that their companies have significant cash on the balance sheet - up from 70 per cent in KPMG's 2011 survey - and more than half (51 per cent) say their companies' cash positions have improved from last year. <br /><br />As per the survey, the emerging-market growth by region, China and India were cited as the two greatest areas for market growth. However, West Asia was placed ahead of Brazil, perhaps reflecting recent weak economic performance of the Brazilian economy combined with strength of the Real.<br /><br />Vikram Hosangady, head of transaction services, KPMG in India, says: "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,".<br /><br />"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.<br /><br />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 US and 58 per cent in Europe.<br /><br /><strong>Investing in Growth</strong><br />The highest priority investment areas are new products or services (35 per cent), and the acquisition of a business (33 per cent). US 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.<br /><br />"Overall, chemical executives are telling us that they intend to put their money to work and boost investment in key areas" added Shannon. "With the struggling global economy, organic growth is a challenge and input prices continue to impact production costs. All of these factors set the stage for aggressive M&A and product development strategies as companies look to gain an edge." <br /> <br />71 per cent of executives indicate that their companies are likely to be involved in a merger or acquisition in the next two years - up from 62 per cent in KPMG's 2011 survey. Once again, respondents in the US were most bullish on being buyers (48 per cent) while European respondents were the most likely sellers (52 per cent).<br /><br />Executives also identified technology (29 per cent) and geographic expansion (27 per cent) as significant areas of investment for their companies. Respondents in Asia-Pacific had the highest expectations for investment in technology (42 per cent), and European executives (32 per cent) plan to increase investment in geographic expansion the most.<br /><br /><strong>Fragile Economic Fundamentals</strong><br />Despite the strong focus on growth and expansion, the macroeconomic environment is far more of a worry for executives than this time last year.<br /><br />Paul Harnick, KPMG's global COO for the chemicals and performance technologies practice, said, "Executives in Europe and the US are more concerned about the state of the global economy than their counter parts in Asia. Balancing potential global economic risks with the need to expand into new products and markets to capture growth will be key to success."<br /><br /><strong>Less Optimistic Views on Revenue and Hiring</strong><br />68 per cent in the 2011 survey. Executives in the US were the most bullish in their revenue projections, with 73 per cent expecting revenue to increase next year, down slightly from 77 per cent in 2011. Expectations for increased revenue among the Asia-Pacific and European executives decreased substantially in the 2012 survey - Asia-Pacific (69 per cent vs. 96 per cent in 2011) and Europe (60 per cent vs. 82 per cent in 2011).<br /> <br />"Ongoing business challenges such as the prolonged economic crisis, volatile input prices and increased pricing pressures are dampening executives' expectations," added Harnick.<br /><br />Executives also appear less optimistic on hiring, with 64 per cent saying headcount will increase next year - down from 71 percent in 2011. Asia-Pacific was most bullish, with 77 per cent expecting to add headcount, followed by Europe at 58 per cent and the US at 56 per cent. In the US 21 per cent of executives actually expect to decrease headcount in the next year (up from 14 per cent in 2011).<br /><br /> </div>
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