19th Annual Global CEO Survey: Chemical industry key findings Growing in complicated times / Addressing greater expectations / Transforming: technology, innovation and talent / Measuring and communicating success Redefining business success in a changing world Chemical industry key findings 59 chemicals executives interviewed in 31 countries www.pwc.com/ceosurvey About the 19th Annual Global CEO Survey In this year’s survey, global business leaders To equip themselves for this challenge – and to voice fresh concerns about economic and build trust and ensure long-term success – CEOs business growth. At the same time, they see a are focusing on three core capabilities. Firstly, more divergent and multi-polar world where they’re focusing even more strongly on customer technology is transforming the expectations of needs as well as drawing on their organisational customers and other stakeholders. In Redefining purpose – what their companies stand for – to business success in a changing world, we explore define a more comprehensive view of how their how CEOs are addressing these challenges. We business operates within society. Secondly, surveyed 1,409 CEOs in 83 countries and a range they’re harnessing technology, innovation and of industries in the last quarter of 2015, and talent to execute strategies that meet greater conducted face-to-face interviews with 33 CEOs. expectations. And finally they’re developing better ways to measure and communicate Today’s business leaders have a tough job finding business success. growth and delivering results year in, year out. But they know an even tougher task lies ahead: to prepare their organisations for a more complex future where customers and other stakeholders increasingly expect them to do more to tackle society’s important problems. About the Chemical industry key findings This report looks in more detail at the views of 59 chemicals CEOs in 31 countries, as well as drawing on in-depth interviews with: Bhavesh V. (Bob) Patel Mark Vergnano Chief Executive Officer and President and Chief Executive Chairman of the Management Officer, The Chemours Board of LyondellBasell Company, US Industries N.V., Netherlands 2 19th Annual Global CEO Survey 19th Annual Global CEO Survey: Chemical industry key findings Chemicals CEOs are facing a tough business environment, but many still see opportunities for growth increasing over the long term. Capturing these will be challenging though, and companies will need to move quickly or risk being beat out by more agile competitors. They rate climate change as a top force changing stakeholders’ expectations, together with technological advances and a shift in global economic power. They’re changing their organisations in response, with customer needs firmly at the centre and increasing their focus on building distinctive capabilities. Growing in complicated times Chemicals CEOs face a business Many companies have made decisions to relocate environment that’s becoming production facilities to take advantage of shale increasingly complicated to read resources in the US, so some of this concern may and adapt to. also stem from a lack of clarity over whether US Many of their top concerns, like over-regulation, shale oil and gas will continue to have a price geopolitical uncertainty, exchange rate advantage over other regions. In our recent white volatility and the Eurozone debt crisis reflect paper, Glimpsing the future(s): Transformation the complex global environment that chemicals in the chemicals industry, we discuss how the companies are operating in. Chemicals CEOs industry’s future might change if feedstock prices also continue to be more worried than their level out across regions. peers about volatility in energy costs, despite the current low oil prices. That’s a trend we’ve seen consistently over the last few years and reflects the importance that oil (and gas) have as inputs to the industry’s cost base. Chemical industry key findings 3 Growing in complicated times Chemicals companies will need to focus In our experience, many chemical companies are on distinctive capabilities to succeed not yet clear enough about how to create value While we’re going to face Margin management and EBIT protection and align this with distinctive capabilities. The volatility in the future, we measures are increasingly becoming a core industry’s stakeholders have widely differing have to ask ourselves how we, as a company, deal capability for the industry. Many chemical expectations, based on regional dynamics and with that? Our strategy is companies have launched restructuring or major differences between customer industries. to do so by focusing both fitness programmes in the past 18 months, and In other PwC research, only about a third on the long-term and the survey suggests this will continue: 71% of (32%) of chemicals operations executives said things we can control. chemicals CEOs say they will implement a cost- that their companies tailor processes based on There are certain things, reduction initiative over the next 12 months. customer segments and their value propositions like the price of oil and These sorts of cost containment and margin – compared to half of respondents across natural gas that we can’t improvement programmes are an immediate industries. control from day to day. reaction to a challenging market environment, That’s why it’s important but we also see some companies starting to US continues to lead growth expectations that we invest in a steady, consider more holistic transformations in the Over the past few years low feedstock costs strategic way. We do not try to time the cycle for near future. By moving from single-function driven by shale oil and gas resources coming growth and investment, improvement efforts to a broader approach online in the US have given the region a but rather, make decisions that takes an end-to-end perspective of the significant cost advantage; it’s also the market that position us for business, from customer needs through company where CEOs are most likely to expect revenue long-term competitive capabilities, companies can move towards growth next year (44%), followed by China advantage. what PwC’s Strategy& calls “next generation (34%), Germany (22%), India and Brazil Bhavesh V. (Bob) Patel productivity.” (both 17%). Chief Executive Officer and Chairman of the Management Board of LyondellBasell Our survey results suggest that some chemical Industries N.V., Netherlands companies are planning to build some of these core capabilities in-house: 25% say they will insource a previously outsourced business process or function. At the same time, a smaller number of chemicals CEOs (19%) report their companies are planning new outsourcing measures. For these to be successful, companies will need to be careful to understand the impacts across the entire business. Figure 1: Chemicals CEOs are less confident about global economic and business growth prospects Q: How confident are you about your company’s prospects for revenue growth over the next 12 months? Do you believe global economic growth will improve, stay the same or decline over the next 12 months? *,6Z]LY`JVUMPKLU[PUI\ZPULZZNYV^[OWYVZWLJ[Z *,6ZJVUMPKLU[NSVIHSLJVUVTPJNYV^[O^PSSPTWYV]L Base: All respondents (Chemicals, 2016=59, 2015=60, 2014=57, 2013=77, 2012=88, 2011=59, 2010=46, 2009=48, 2008=41, 2007=36). Source: PwC, Annual Global CEO Survey data Note: In previous years, respondents were asked ‘Do you believe the global economy will improve, stay the same or decline over the next 12 months?’ 4 19th Annual Global CEO Survey Today’s market is tough, but Many of the industry’s major players increasingly opportunities are increasing integrate sustainability into everyday decision Just 29% of chemicals CEOs think global making in areas like investments and portfolio economic growth will improve over the next 12 management. They’re also using it to identify months compared to 38% last year. Near-term new growth opportunities. Some have confidence levels are down over last year too; even started to quantify the impact of more only 22% of chemicals CEOs are very confident sustainable behaviour and its impact on its future of revenue growth over the next 12 months, strategy and competitiveness. down from 28% last year and 33% in 2014. The chemicals industry stands out from other Despite these challenges, 71% of chemicals CEOs sectors in rating resource scarcity and climate say there are more opportunities for growth change higher as a force impacting stakeholder now than there were three years ago, while 64% views – 68% of chemicals CEOs believe that say there are more threats. That suggests a high resource scarcity and climate change will be pace of change in the industry, which is facing one of the trends most likely to transform wider a volatile and dynamic environment. The key stakeholder expectations of businesses within will be understanding how to navigate changes this sector over the next five years, compared to in the marketplace: sometimes threats and 43% of CEOs overall. For the sector, this concern opportunities stem from a single trend. likely focuses more strongly on climate change issues. The climate change accord reached at Resource scarcity and climate change is the United Nations Climate Change Conference the top force for change in the chemical in Paris in December 2015 highlights a growing industry global commitment to address emissions and Take climate change. More chemicals CEOs see their impact. it, together with environmental damage, as a potential threat to growth (69% vs 50% of CEOs The other two trends CEOs are most likely overall). At the same time, our discussions with to see shaping the future of the industry are CEOs over the last several years have consistently technological advances and a shift in global shown that climate change is also a major economic power. Technology is becoming a opportunity, as many chemical products help driving force for operational improvement, while other industries become more sustainable.