ICIS surveys readers on the current market situation

Out of the woods?

08 March 2010 00:00 [Source: ICB]

Executives have spent the past 18 months grappling with the chemical downturn. How have they reacted and what are their thoughts on recovery?

If you are a manager at a chemical producer or distributor, we welcome your input. Complete our concise questionnaire. It should take only a few minutes to fill in. Thank you for your participation

THE EFFECTS of the sharp demand downturn that hit the chemical sector in the fourth quarter (Q4) of 2008 are still with us. Company financial results for 2009 show sales down by double-digit percentages, largely flat volumes through the year and little, if any, optimism for a strong upturn.

Indeed, if the fears of Clariant's chief financial officer Patrick Jany are realized, 2010 could see a slowing of demand again, especially in the so-far better-performing Asia and Latin America regions. The Swiss specialty chemical company is, Jany says, continuing its focus on reducing costs and maximizing cash in readiness for an uncertain year.

The sentiment was echoed at Dutch coatings and chemical company AkzoNobel earlier this month. CEO Hans Wijers noted: "We believe the recovery is fragile and will be slow. We continue to focus on customers, cost reduction and cash generation." But, he added, "investments to capture growth will remain a priority - particularly in high growth markets."

AkzoNobel's 2009 revenue declined by 10% to €13.89bn ($18.84bn) in 2009. Clariant's dipped by 14% in local currency (and 18% in Swiss franc terms) to €6.6bn. Belgium's chemical and plastics major, Solvay, also saw total sales fall, by 11% to €8.49bn, and Netherlands-based life and materials sciences firm DSM sales fell by 15% to €7.87bn.

In the face of falling volumes and sales, companies across the board were forced to react swiftly as they entered 2009. Senior managers learned a lot of lessons very quickly as they adapted to the unprecedented downturn - idling plant and reducing working hours, cutting capital expenditure and focusing on cash flow and inventory.

But what were the key learnings? Was 2009 as a whole as bad as people expected in Q1? And perhaps more importantly, is a sustainable recovery really underway?

ICIS and Germany-based J&M Management Consulting surveyed the industry in March last year, just as the tide was beginning to turn, and early reports of volume recovery were being heard. The results of the survey, and findings from 10 face-to-face interviews, were then published in ICIS Chemical Business on June 8.

Now, ICIS and J&M are returning to ask ICIS readers and executives how they see the downturn, what lessons have been learned and when the industry might return to the peak levels of business last seen in 2007-2008.

James Black, chemical practice leader at J&M Management Consulting believes many companies were unprepared for the speed, severity and global nature of the downturn. "Most found they did not have the best management metrics [key performance indicators, or KPIs] in place and that their management review and decision-making processes also struggled. Some reacted slowly, while others were able to respond and elevated decision-making levels and accelerated cycle times from monthly to weekly or even daily."

EVERY PENNY COUNTS
Free cash flow and cash were at the forefront of most CEOs' minds this time last year. Said one: "This is all about conserving cash and keeping a healthy balance sheet to survive the downturn."

The 2009 survey results showed the increase in importance of cash and cash flow in KPIs. The most quoted comment was "cash is king." Another CEO commented: "We have really understood the importance of inventory - it's moved from being an operational measure to being a strategic issue which is the consequence of several decisions across the value chain."

Other comments included: "We found we didn't have the correct information, processes or decision-making to manage cash and other critical aspects - so we started key task teams that were run daily by the CEO and other executives to manage them directly."

And: "We have had to move to a shorter-cycle decision-making process for key issues - this typically has meant that my team and I have got more closely involved."

So has the crisis meant any permanent changes in what management focuses on, or the way companies are run? The 2010 ICIS J&M survey intends to explore these questions. The results will be made available to all ICIS readers in a major analysis article later this year.

ABOUT ICIS AND J&M
This survey is part of a series of offerings from ICIS custom publishing, headed by global editor John Baker, formerly editor of European Chemical News and ICIS Chemical Business. For more details, please contact john.baker@icis.com

J&M Management Consulting combines management consulting with IT consulting. By optimizing business processes and supporting performance with modern IT solutions, it helps chemical companies achieve strategic goals faster and with sustained success. J&M's expertise includes supply chain management and its associated business processes, including distribution, marketing, R&D interfaces, finance and controlling.

More information on J&M Management Consulting

By: John Baker
+44 20 8652 3214

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