BOSTON, May 21, 2013—Despite the challenges of the global downturn, the chemical industry has quietly proven itself a value creation star. From 2007 through 2011, the industry generated nearly twice the total shareholder return (TSR) of a 21-industry average, and its top-ten performing companies ranked first in TSR among the cross-industry top ten. That’s according to The 2012 Chemical Industry Value Creators Report: Rebounding from the Storm, a new report released today by The Boston Consulting Group (BCG).
In the five-year period just before and following the global financial crisis, chemicals ranked fourth overall in value creation, achieving nearly double the annual TSR (4.7 percent) of the 21-industry average (2.4 percent). Within the chemical industry, the top-ten companies among the nearly 100 companies BCG analyzed fared even more impressively, averaging 39 percent annual TSR over the five years.
The 2012 Chemical Industry Value Creators Report analyzes the performance of five key industry subsectors (base chemicals and basic plastics, agrochemicals and fertilizers, industrial gases, focused specialty chemicals, and multispecialty chemicals) over three pivotal time periods: 1992–2011, 2002–2011, and 2007–2011. This intensive analysis yields compelling insights about the sector’s drivers of success and those of its top-ten companies.
“Postcrisis, and for the past 20 years, the best-performing companies were largely based in emerging markets,” says Yves-Pierre Willers, a BCG senior partner and a coauthor of the report. “But when we look deeper at the 10- and 20-year periods, we see more than an emerging-markets growth story. Many companies benefited from natural advantages, while others pursued disciplined operational and management strategies.”
The Regional Versus the Subsector Edge
Region of operation had a greater impact on value creation than industry subsector, both in the long term and in the postcrisis period. Emerging-markets-based companies registered the highest TSRs, and U.S.- and Europe-based companies also generated most of their postcrisis growth in emerging markets.
“Everywhere else, value creation suffered,” Willers noted—a result of the anemic global economy, the lack of volume recovery, and margin erosion from feedstock inflation. Japanese companies performed the worst, with negative 12 percent TSR during the 2007– 2011 period.
Looking through the subsector lens, the report found wide-ranging performance influences and outcomes. Specialty chemical firms—both multispecialties and focused specialties—outperformed the other subsectors over the past 20 years. But over the more recent 10-year period, the two top-performing subsectors were base chemicals and basic plastics (with 22 percent average annual TSR) and agrochemicals and fertilizers (20 percent average annual TSR).
Natural Advantage or Management Strategy?
The authors sifted through macroeconomic trends, industry developments, and management strategies over the three time periods in an effort to separate serendipity from skill in uncovering the secrets to value creators’ success.
For three categories of top performer, success could be largely attributed to natural advantage. South Korean companies, benefiting from high export rates, enjoyed substantial growth; mining-based companies exploited their downstream derivatives; and polymer players benefited from demand for basic needs in the fast-growing emerging markets.
But others followed a different value creation model. As Andreas Gocke, global sector leader for chemicals at BCG and a coauthor of the report, observed, “These companies moved operational levers: they pursued sales growth and EBITDA margin and reduced debt.” In addition, Gocke said, “Savvy portfolio strategy, especially investments in specialty chemicals and inorganics, and an always-on approach to M&A proved to be a winning formula for value creation.”
From the performance analysis, the report distills a set of management principles that chemical companies might follow for future value creation. It also looks ahead at four critical economic and industry developments that will affect the chemical industry over the next several years. These include growing resource constraints, rising food demand in developing nations, the shale gas revolution in North America, and the European debt crisis.
A copy of the report can be downloaded at www.bcgperspectives.com.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or firstname.lastname@example.org.