The lecture from Dr. Joerg Straßburger, speaking at the 9th Annual Chemical Industry Outlook Conference in Mumbai, India
How do the results of the most important, listed European chemical companies develop during 2007 until 2014? How did the companies react to worldwide economic fluctuation, especially during the financial crisis, and with what kind of measures did they counteract. Through the results, according to Dr. Joerg Straßburger, one can deduce possible actions, with which the companies can prepare more thoroughly for the volatility of the markets.
The most important insights in overview:
- The macro-economic volatility in the past years has clearly reduced
- Strong profit fluctuation was prevented through better company structures and processes
- Regional diversity and a broad customer portfolio helps in softening the fluctuation amplitude
- During the financial crisis all leading European chemical companies have averted massive profit setback – through short response time and the fast implementation of challenging action plans
A strong volatility of the business results is a big threat for the existence of companies. Especially if the results suddenly and unexpectedly drop, the management is forced to act quickly, reduce personnel and investment plans, and to cut and even stop paying dividends, giving staekholders inside and outside a negative image of the company. This could cause the danger, that qualified workers leave the company, investors sell their shares and as a result fallen stock prices make the company an easier acquisition target.
But even positive volatility of results is not wanted (even if this is less critical), as positive expectations for the future arise, which in long-term the company might not be able to fulfill.
Therefore it’s in the companies’ interest, to minimize the volatility for business results and to keep the company constantly growing.
For the presented study, ten listed European chemical companies were studied, how they deal with volatility in their markets, and with what measures they try to minimize the influence on their business results.
The focus was on the period between 2007 and 2014, which includes the financial crisis of 2008/2009. During this time many markets were hit by massive decline in sales and the companies were under considerable pressure, to reduce the influence of crackling markets on the business results – with drastic measures.
In his presentation, Dr. Joerg Straßburger, shows, with what measures (and with what success) the companies reacted. It was becoming obvious: flexibility and reaction time are essential factors. It was important to react fast: cut on personnel, decline the warehouse charges, and renegotiate purchasing conditions – the bandwidth of the measures covered all sectors. It was obvious, that regional diversity, as well as a broad customer portfolio were a good buffer against result fluctuation. But he also could show that a broad product portfolio is not a guarantee against result fluctuation.
Lastly, as shown by the results of the study, all studied companies have been able to limit the result fluctuation to a minimal of 60% of the EBITDA level of 2007, through the presented measures.
The Annual Chemical Industry Outlook conference is held annually on invitation and initiative of the Indian Chemical Council (I.C.C.) in cooperation with the ministry for chemicals and fertilizers in Mumbai, India. The participants are representatives of the industries from India, Europe and the United States.